The return on investment (ROI) for marketing is a big consideration for many people, and rightfully so. As a business owner, you likely want to know whether your marketing efforts are bringing value to your company or if they are being wasted. It may seem as though calculating ROI is a daunting task. The truth is, calculating ROI can be very easy, as long as you know how to do it. In this blog post, we explain both traditional and non-traditional ways to calculate your marketing ROI.
With the traditional, and technically “correct” method of calculating ROI, a business will identify how much revenue was generated, and compare that to the total expenses. The focus is purely on looking at the monetary return on investment. For example, you place custom tracking phone numbers in your television, newspaper and other print advertisements. Then, track the number of leads generated from people who call those phone numbers. If properly tracked, it will be possible to calculate every sale made through the various marketing ad placements. To find the ROI, add up the total revenue made through those marketing channels, then compare that against the total cost of marketing. However, looking at just the immediate monetary gain doesn’t necessarily give a full picture of all the value generated from the expense.
Traditional ROI Calculation
Here’s the formula for calculating ROI: ROI = Revenue / Cost X 100. For example, if you spend $4,000 on PPC advertising and you receive returns of $1,000, the ROI is 25%. The calculation would be $1,000 / $4,000 X 100. Of course, a general goal is to have an ROI of at least 100%, so your business did not lose money with the investment. But a better goal is to have more than 100% ROI. This way, the marketing dollars spent result in a profit, rather than breaking even or having a financial loss.
Although a “true and accurate” way to calculate ROI is what we just shared above, this approach doesn’t quite give a full picture of what was acquired from the marketing activity. So, while the non-traditional way to calculate can be shot down as an inaccurate way to look at ROI, it does give a different and more thorough picture to the business owner who wants to know what they truly got out of their marketing expenses.
In explaining non-traditional ROI, let’s consider the analogy of you interviewing for a new job. When interviewing with a company for a full-time position, you may look at the company benefits, such as a 401(k) and insurance coverage, along with your salary. Another company could offer you a higher salary, but zero benefits. The benefits of the company that pays you less could be a better option, even if the second company technically pays you more. This same concept applies to your marketing ROI. While the technical ROI may be lower for one type of marketing, that same marketing channel may bring in additional benefits, making it just as good or better than another form of marketing that has a higher ROI.
So, with the non-traditional ROI calculation, you don’t just look at the monetary return of your investment, you also look at the nitty-gritty details, cost, and results of the entire marketing campaign. This overall picture helps you determine what’s working for you and what needs to change.
Non-Traditional ROI Calculation
So, what is the non-traditional way to calculate ROI? If there was a one size fits all formula or algorithm to calculate non-traditional ROI, this post would be much shorter! But there is simply no single formula that works for everyone. In the same way marketing goals vary from one business to another, so does the method of calculating non-traditional ROI. One large corporate business might only care about the monetary return from the marketing campaigns. Simultaneously, another business of the same size and industry could be looking to primarily expand its online presence or build awareness. These two businesses would look at and calculate their ROI very differently.
You need to set up key performance indicators that are tied to different social media marketing channels. For example, if you’re aiming for increased brand reputation, that’s not monetarily quantifiable. However, having a better brand image is certainly helpful, and so is increased brand awareness. In this case, a non-traditional return on the investment might include something like improved engagement on social media or better rankings on Google. While these metrics can be measured, there is no telling how much monetary revenue will come over the months and years to come, simply because of those efforts. But, to stop doing social media or improving your Google rankings, simply because the monetary value wasn’t as great as something else in the short term, may not be the wisest move. Let’s break down monetary ROI and non-monetary ROI in terms of social media to better understand the difference.
Calculating ROI on Social Media Activity
Over the years, social media has become a great proof of success in the marketing world. But since there are no dangling dollar signs on Facebook likes or retweets on Twitter, how do you calculate ROI? Well, this is a tricky one. Keep in mind, 60% of advertisers see measuring social media ROI as one of the top three business challenges.
The first thing is to decide what you want to achieve with your marketing. This may include getting new followers, signups for newsletters, new email contacts, more purchases, etc. To find these numbers, you can use the social media platform’s analytics tool. For example, there is LinkedIn Company Page Insights, Facebook Insights, Pinterest Web Analytics, etc. Then, if you met the goal you were hoping to meet with your campaign, calculate that into your ROI assessment.
Also, make sure you don’t make goals, like getting more Twitter followers, just for the sake of having them. If you strive to get more followers, then what will you do with those followers once you’ve gotten them? They should play into another step in your marketing funnel. And eventually, they should either become a customer or client, or they should be useful in promoting your business to others in your target market. Everything you strive to do in marketing should tie in with a well crafted marketing plan.
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Why it’s Not JUST About Monetary ROI
Even though it’s helpful to know what your ads cost, what brings you traffic, and what converts, the beauty of digital marketing is that it does more than just give you dollars in the bank. It gives your brand a reputation, creates brand awareness and increases visibility. None of which can be easily translated into monetary ROI, though they will ultimately help with sales in your future. So, consider the other goals you have, aside from just the monetary return. Also, think about how best to measure success with these goals.
Are you trying to be seen an authority figure? Do you want to build a network that shares the same interests with your brand? Pinpoint those goals. Then, determine if your marketing efforts are helping with those other goals. What would it be worth to accomplish those goals? How much value would you put on those goals? Consider this when determining where to put your money. Look beyond just the traditional ROI.
Calculating Non-Traditional ROI
One possible idea is to literally assign a dollar value for non-monetary goals. For example, regardless of whether or not they turned into sales, if you could have 250 people message you on social media, to ask about your product or services, what would that be worth to you? Would it be $250, or $2,500 or $25,000? Give that goal a value. Then, calculate the actual results and factor them into your ROI analysis. You can repeat this same process for every marketing channel you use, to calculate a more accurate ROI. In the future, you can adjust the dollar value to these goals, as you further define how much benefit they actually provide.
Keep in mind that while we used social media to illustrate the importance of calculating non-traditional ROI, it goes well beyond just social media. Apply this same concept to SEO, blogging, email marketing and other forms of digital and traditional marketing. While in some cases a traditional ROI is the best way to calculate success, this isn’t the case for every business. The way to look at ROI really depends on the goals of the business and the metrics used to gauge success.
We can’t deny the that many businesses are embracing the non-traditional ways of calculating ROI. The tools you use to do your calculations should help you more effectively plan out your marketing efforts. While the traditional way of calculating ROI may show the dollar amount you earned or lost, non-traditional ways should be used in conjunction with the traditional ROI. This will help you see more than just profit and loss.
Be sure to use web analytics to provide more insight into ROI across different marketing channels. Once you fully understand what’s going on, you can make informed decisions for your future campaigns. A business owner should look at the benefits (monetary and otherwise) of all marketing platforms and decide how to attribute value based on the goals and performance of each one.
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