The return on investment, or ROI, is probably the most relevant indicator to measure the success of marketing actions in the broadest sense, whether they are campaigns, tactics, levers, channels or even an overall strategy.
The difficulty to measure the ROI of marketing actions is a recurrent friction between marketers and their management. Indeed, decision-makers rely primarily on this indicator to allocate the year’s budgets. The evolution of purchasing behaviors towards omnichannel, the difficulty of collecting certain data in the age of RGPD and the complexity of the technological stack of companies complicate the measurement of ROI, to the point of making it the number one challenge for marketers according to a survey by Mperativ.
In this practical guide, the LeadIn editorial team explores the definition and interest of ROI, offers concrete examples to help you understand this indicator, and provides 10 practical tips to measure it properly. Let’s go !
What is marketing ROI?
Return On Investment (ROI) is an indicator that measures the success of a marketing strategy by calculating the ratio between the benefits generated and the total cost of an action, a channel, an initiative or a marketing campaign. The resulting ratio is expressed as a percentage. In practice, ROI is sometimes expressed as the number of monetary units generated per monetary unit spent. Let’s take an example to understand this important indicator in marketing practice.
Example of marketing ROI calculation
A company launched a marketing campaign to promote a new offer with a budget of 5 000 €. This campaign generated a sales volume of €12,000, with associated direct costs of €4,000 (purchase of raw materials, production costs, etc.). The net benefit of this marketing campaign is therefore calculated as follows:
Net profit = 12 000 € – 4 000 € = 8 000 €.
Once you have calculated the net profit associated with that sales volume, you simply divide it by the total cost of the marketing campaign that generated that revenue.
ROI = = = 1,6 = 160 %
The ROI of this marketing campaign is therefore 160%. For every euro spent, the company generated €1.6. The marketing campaign was therefore profitable.
In this simplified example, we have not taken into account the indirect costs of the marketing campaign, such as the cost of personnel, which can be captured by the number of man-days spent in the design of the marketing campaign in question. In practice, companies that want to calculate an accurate, reliable and true ROI must include all direct and indirect costs related to the campaign in question. Cost accounting allows you to collect this data to refine the calculation of marketing ROI.
The 4 applications of marketing ROI
Measuring marketing ROI is the basis of the decision-making process. This indicator covers four major objectives:
– Thisis an “authority” indicator that allows you to judge whether a strategy, campaign, tactic or marketing lever has been profitable;
– Itis also an indicator that allows to evaluate the degree of profitability of a strategy, campaign, tactic or marketing lever;
– ROI also allows you to compare the performance of different marketing strategies, campaigns, tactics and levers retrospectively to make an informed choice and rationalize spending;
– Finally, the ROI can be associated with testing methods (A/B test) for example to define the best way to proceed and optimize a marketing campaign.
Why calculate your marketing ROI?
The systematic measurement of ROI and the use of the results for further marketing decisions contribute to the improvement of the company’s profitability, competitiveness and business performance. In concrete terms, the calculation of the marketing ROI makes it possible to :
– Evaluatethe success of all marketing department initiatives to initiate a continuous improvement process by identifying the best levers and tactics. Over time, this systematic calculation of ROI can give the company a competitive advantage, resulting in a “magic formula” for profitable marketing campaigns;
– Justify marketing expenses and release budgets to management to improve the marketing department’s flexibility;
– Streamlinethe distribution of the marketing budget, favoring the levers, tactics and channels that generate the best ROI. The return on investment facilitates arbitration, insofar as the choices are based on immutable, objective data that are difficult to discuss;
– Refine and improve the accuracy of the sales forecast to gain visibility… an interesting argument in a turbulent and volatile environment;
– The systematic calculation of ROI allows marketers to take responsibility and to establish a performance mindset.
According to Gartner, 65% of companies will have completed their transition from an intuition-based to a fully data-driven decision-making model by 2026. Companies that do not negotiate this change properly will be two years behind the competition, with an obvious risk to their competitiveness and even their survival.
And since ROI is the key indicator of the data-driven decision-making process, measuring it is simply crucial for the performance and sustainability of companies, whether in B2B or B2C. As you will see in the next section, measuring ROI is a major challenge for the marketing function.
The 3 major challenges that complicate the calculation of marketing ROI
In a November 2022 study, LinkedIn surveyed 2,900 executives, including 500 B2B marketing managers (CMOs), about the impact of the current economic climate on their marketing strategy. It says that the majority of CMOs (77%) say they are “under pressure” to measure the ROI of their marketing campaigns in the short term.
Indeed, in these uncertain times, CEOs are moving towards reducing investments in marketing, advertising, technology and recruitment. ROI is therefore the indicator of choice for making the necessary trade-offs and identifying marketing expenses that can be reduced without significantly impacting the revenue generated. The problem is that marketers are not always able to calculate the ROI of their actions, especially in the short term.
#1 Difficulty in linking marketing actions to revenue generation
According to Mperative’s ” Trends in Revenue Operations ” survey, 85% of B2B decision makers fail to link marketing actions to revenue generation, making it impossible to measure ROI. Indeed, if we go back to the example detailed above, it is impossible to measure the ROI if we do not know the net benefit of the marketing campaign. More concretely, marketers are sometimes unable to identify sales that come directly from a campaign from those that would have occurred even without the campaign. This problem is often encountered in branding campaigns, which aim to boost the company’s reputation and improve its brand image, without a CTA to a sales page.
#2 Obsolete or poorly integrated tools
According to the Mperativ study, the difficulty in calculating marketing ROI is due in part to the use of outdated tools such as Excel spreadsheets and other manual formats. Similarly, the fact that the various tools that make up the company’s technology stack are not properly integrated results in scattered, isolated and “siloed” data, making it difficult to measure attribution and calculate ROI.
This issue is even more serious when you consider that consumers (B2C) and buyers (B2B) are now adopting an omnichannel buying journey, which may involve the company’s website, its social media pages, the phone, instant messaging, video conferencing, email and face-to-face interactions. If the company is not able to collect all this data, integrate it into a coherent whole and extract usable information, the measurement of ROI will be impossible or, at the very least, incomplete and imprecise.
#3 Under pressure, marketers are pushed to calculate ROI too soon
In a complicated environment, management is constantly pushing marketers to demonstrate the effectiveness and impact of their actions. In B2B, where the sales cycle is sometimes very long, the ROI of a marketing campaign cannot be calculated before 3, 6, 12 months or more. Indeed, a B2B buyer may very well respond favorably to an advertising campaign, only to engage in a buying journey that may take several months before leading to a purchase. There are several reasons for this slowness:
– In B2B, the products and services marketed are generally complex. The decision to buy therefore involves the intervention of experts, the study of complex technical characteristics, etc.
– In B2B, the average selling price is usually high, which requires a rigorous validation process;
– In B2B, the company does not only buy a product or a service. It chooses a partner for several years, which lengthens the purchasing process;
– On average, the company changes suppliers every 5 years, usually with renewable annual contracts. So, a decision maker may be receptive to a marketing campaign, and consider a purchase at the end of their contract… which may take a year or more.
For all these reasons, B2B marketers cannot measure the ROI of their campaigns a few weeks after their launch. A study conducted by LinkedIn explains this issue very well:
– 77% of marketers surveyed say they measure the ROI of their campaign within the first month of its launch;
– 55% of these marketers say that the sales cycle for their product lasts more than three months;
– Only 4% of marketers surveyed by LinkedIn say they calculate the ROI of their marketing campaigns more than 6 months after launch;
– In another study, the majority of B2B customers surveyed said they would make a purchase six months after being “exposed” to a marketing campaign.
In short, marketers are pressured by their management to calculate the ROI of their campaigns far too early, in a time frame that is shorter than the average sales cycle. As a result, measured ROIs are artificially low, marketing is misjudged, budgets are tightened… and marketing is under-resourced to carry out its mission.
Our 10 tips for measuring the ROI of your marketing actions
Measuring ROI is probably the most complicated aspect of the marketing team’s daily work, as it requires a certain technical and operational mastery, a perfectly integrated technological stack and a well thought-out, coherent and rigorously executed strategy. Here are our 10 tips to improve your ability to measure the ROI of your marketing actions:
1. Identify key performance indicators (KPIs): To measure your company’s marketing ROI, it is important to determine the key performance indicators (KPIs) that will allow you to track the progress of your campaign. These KPIs can include conversion rate, cost per lead, customer retention rate, etc. ;
2. Use tracking and measurement tools Tracking and measurement tools: There are many tracking and measurement tools that will allow you to track the progress of your marketing campaign and measure its ROI. These tools can include campaign management software, social media tracking platforms, etc. ;
3. Measure all costs associated with your campaign: To calculate your company’s marketing ROI, it is important to take into account all costs associated with your campaign, including indirect costs such as personnel costs. As mentioned above, do not hesitate to ask the accounting and financial department (cost accounting in particular) to provide you with precise figures on the direct and indirect costs of the marketing department;
4. Use a standardized ROI calculation model: To compare the performance of different marketing campaigns, it is important to use a standardized ROI calculation model that takes into account all costs and results of each campaign. Integrating overhead on one campaign but not on another will inevitably distort the results;
5. Analyze the data in depth: to get an accurate view of your marketing campaign’s performance, it is important to analyze the data in depth and segment the results by channel, product type, etc. Also, you must weight the results according to the time of year (the holiday season is generally more buoyant than the end of summer, for example);
6. Use data visualization tools (DataViz): Data visualization tools can help you better understand the results of your marketing campaign and identify optimization opportunities;
7. Be patient: an ROI calculated too early is a biased and useless ROI. As explained above, it can sometimes take up to a year before the opportunities generated by a marketing campaign lead to a sale, especially in B2B. So be patient, or make your management aware of this problem;
8. Test and optimize: It’s important to test different versions of your marketing campaign and closely monitor the results to identify the elements that work best and optimize them. A/B testing on the same tactic or campaign can help you identify the “best version” of that campaign;
9. Communicate the results: It is important to communicate the results of your marketing campaign to the relevant employees to discuss their meaning and impact on the company’s objectives. This will help you better understand what works and make informed decisions for future marketing campaigns;
10. Systematize ROI calculations, even when you run a campaign that has already been measured in the past. Consumer (B2C) and buyer (B2B) behavior is changing. A campaign that had an ROI of 3 three years ago may be less profitable (or more profitable) today.