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Home > Blog > Digital Marketing > PPC >

What is ROI in Marketing and How to Calculate Marketing ROI

One of the significant components of a marketing campaign is to evaluate performance, impact, and profit.

What is ROI in Marketing

Why?

It can help you determine whether the campaign is supporting your bottom line.

Return on investment (ROI) is one of the critical metrics in marketing you should keep a close eye on. Besides, it’s one of the terms marketers use to dollarize the benefits of their products.

By calculating return on marketing investment (ROMI), you can measure how your marketing efforts are contributing to revenue growth. Typically, marketing ROI justifies marketing spending and budget allocation for ongoing and future campaigns.

So how can you track your ROI in a time-saving way?

You don’t have to track your ROI manually. We recommend you give a particular tool (we’ll talk about later) a try to receive timely signals of your campaigns’ ROI in an immersive and easy to interpret dashboard.

In this blog, you’ll discover:

  • What is ROI in Marketing?
  • Why ROI in Marketing is Important?
  • How to Calculate ROI in Marketing?
  • What is a Good Marketing ROI?
  • What are the Challenges of Measuring ROI in Marketing?
  • How to Maximize the ROI in Your PPC Campaigns?
  • Wrap Up

What is ROI in Marketing?

Return on Investment (ROI) is the profitability of a business’s marketing efforts.

For instance, if you spend $1 on marketing, how much more will you earn in the long run?

The question above is looking for a return on dollars invested in marketing.

The main purpose of marketing is to drive sales, which earns a business revenue. Therefore, it’s critical to understand the relationship between costs associated with marketing and its returns generated. The answer will help you determine the productivity and the effectiveness of your marketing efforts.

ppc-signal-optimization-tool

Keep reading because we’ll address the following question: What is ROI in marketing?

Why ROI in Marketing is Important?

Marketing ROI is a significant metric, especially among the top management personnel. They have to track the metric to quantify the results of campaigns and plan for future marketing budgets. Campaigns with higher ROIs are likely to be replicated. On the other hand, marketing campaigns with lower ROIs are purged.

How to Calculate ROI in Marketing?

The universal way of calculating return on investment is highlighted below:

ROI = (Return – Investment) / Investment %

You have to factor in hidden costs, such as:

  • Salaries for marketing team members
  • Cost of buying media space
  • Cost of developing creative marketing assets, such as videos, customer stories, blogs, social media posts, etc.

The most reliable formula for calculating return on investment is as follows:

(Number of leads x Lead to customer rate x Average sale price) – Cost for marketing] / Cost for marketing

Let’s break down each part of this formula:

  • The number of leads: Your number of leads is how many people converted into a lead. These people have an established interest in your business.
  • Lead to customer rate: Your lead to customer rate is the number of online users that turned from a lead to a customer. For instance, if you have 20 customers (out of 100 total leads) your conversion rate is 20% or 0.2.
  • Average sale price: The average sale price is in this scenario accounts for discounts as well.
  • Cost for marketing: It’s the total amount spent on the marketing campaign.

Imagine you have 1000 leads, and 50% of them become customers. On average, they spend $50. And it costs you $4000 to market to these leads.

Let’s use the following ROI formula.

(Number of leads x Lead to customer rate x Average sale price) – Cost for marketing] / Cost for marketing[(1,000 x .50 x 50) – 4,000] / 4,000

([25,000 – 4,000]) / 4,000

21,000 / 4,000

ROI = 525%

What is a Good Marketing ROI?

ROI is subjective and depends on your needs and goals as a company.

Some companies strategically choose to pursue marketing campaigns that yield negative returns on investment (ROI) to dominate in consumer awareness and market share.

Yes, you read that right.

Some marketing campaigns may pursue non-monetary goals, such as heightened social media engagement. The most pragmatic ROIs range between 2:1 to 6:1.

An outstanding ROI is 10:1 and above, where you get $10 for every $1 spent. A good Return on Marketing Investment (ROMI) will depend on your niche. And it’s heavily influenced by factors, such as overhead costs, margins, and industry.

What are the Challenges of Measuring ROI in Marketing?

Marketing is a long-term, multiple-touch process that leads to sales growth over time. The month-over-month change is more likely to be spread over several months or even a year. The ROI of the initial months in the series may be flat or low as the campaign starts to penetrate the target market.

The ROI recorded during this period may be misleading. As time goes by, sales growth and ROI will likely uptrend.

Secondly, some marketing campaigns are designed around more than just generating sales. Some marketing agencies get around weak PPC ROI figures by adding more soft metrics to please their results-oriented clients.

Some of the ‘soft metrics’ include brand awareness via media mentions, social media likes, and even the content output rate for the campaign.

Keep reading because we’ll address the questions and information related to What is ROI in marketing?

How to Maximize the ROI in Your PPC Campaigns?

  • Implement ad extensions

Extensions are additions to your PPC ads that show additional information, such as your location and telephone numbers.

  • Track key metrics

Below are some of the marketing metrics that can help you maximize your pay-per-click campaigns’ ROI.

  1. Clickthrough rate (CTR): This is the percentage of people who see your ad and click on it.
  2. Cost per conversion: This is the average amount of money you spend on ads to get one conversion.
  3. Conversion rate: This is the percentage of people who click your ads and convert into customers.
 ppc audit report bottom

The Tested and Proven Tool that Can Help You Maximize ROI in your Marketing

Automation is one of the innovative ideas you can easily implement to shape your pay-per-click (PPC) campaign strategy for positive returns on investment without spending hours.

It’s really daunting to keep an eye on every change happening in your marketing campaigns.

Automate some of the most time-consuming activities related to managing (PPC) campaigns.

Without a smart tool, you’ll have to spend an exhausting amount of time analyzing your data for opportunities to elevate your returns on investment (ROI).

This is where PPC Signal comes in.

PPC Signal is a tool you can leverage to grow your PPC campaigns’ returns on investment by double figures.

Yes, you read that right.

The application uses artificial intelligence technology to automatically monitor your digital marketing campaign data for changes that influence your returns.

The changes, as mentioned above, can be categorized as:

  • Shifts
  • Trends
  • Outliers
  • Anomalies

A shift occurs when a series of consecutive data points fall above or below the norm. On the other hand, outliers are single data points that fall way above or below the standard deviation line. Trends are the relatively long-term up and downswing movement of a particular phenomenon.

These noteworthy changes are presented as signals.  Each signal is labeled as either a risk or an opportunity.

You really have absolute freedom to choose the noteworthy changes to pursue. I mean changes that are aligned with your strategic goals, such as revenue growth.

In the next section, you’ll see PPC Signal in action, providing actionable insights tied to ROI, such as conversion.

What is ROI in Marketing

Let’s explore the insights provided by PPC Signal.

In the red box, insights are denoted as risk or opportunity using red and green colors, respectively (currently there is no green in screen shots but if you will scroll down in the demo page you will find that)

In the last 28 days, the cost per conversion (depicted by red color) has been on the rise, which is a risk. If left unattended, it can easily drain the budget.

PPC Signal provides you with the ability to filter your signal (risk or opportunity) based on metrics, device type, keyword, geolocation, the hour of the day (HoD), and day of the week (DoW).

What is ROI in Marketing

The blue Explore button provides more details about a signal using charts and additional information.

More so, you can easily bookmark a signal for later reference by clicking the Bookmark button.

What is ROI in marketing? The aforementioned question is what we’re currently addressing in the blog.

What is ROI in Marketing

You can also explore the signals provided in visual form to gain in-depth insights. Besides, you can easily forecast the occurrence of a risk or an opportunity by extrapolating the chart.

What is ROI in Marketing

PPC Signal has the Take Action button, which, if clicked, will guide you to take the corrective action(s). Furthermore, it produces automatic signal reports with recommendations you can take to drive high ROIs with minimal costs.

FAQs:

Why is it difficult to measure the effectiveness of advertising?

Some of the factors that hamper effective measuring of success in ad campaigns include:

  • Increasing fragmentation of the media landscape
  • Higher clutter in traditional media platforms
  • Overlaps of exposure across media platforms
  • The difficulty of measuring the impact of new platforms like social media, in-game, in-movie,

What is a good ROI for B2C?

Overall, a productive and profitable ROI ranges between 25%-50% for business-to-consumer (B2C) businesses. However, the ROI depends on a wider variety of factors, such as industry, size of the market, competition level, overhead costs, and technological landscape. Research the industry average ROI and benchmark your performance.

Wrap Up

Well, it’s one of the critical components of a marketing campaign, which can help you determine whether the campaign is supporting your bottom line.

Return on investment (ROI) is one of the critical metrics in marketing you should keep a close eye on. Besides, it’s one of the terms marketers use to dollarize the benefits of their products.

By calculating return on marketing investment, you can measure how your marketing efforts are contributing to revenue growth. Typically, marketing ROI is used to justify marketing spending and budget allocation for ongoing and future campaigns.

So how can you track your ROI in a time-saving way?

You don’t have to track your ROI manually.

We recommend PPC Signal, one of the leading AI-driven applications, whose goal is to help you save time, especially when tracking metrics tied to your overall ROI. It uses advanced algorithms to detect opportunities and risks automatically in your marketing campaigns.

No matter how complex or paralyzing your data is, PPC Signal provides actionable observations about positive and negative changes closely tied to your overall return on investment.

To drive the sky-high ROIs from your marketing budget, let’s sign up for 7 days trial

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