Return on investment (ROI) is a measure of the profit earned from each investment which can be calculated using a simple formula: (Return – Investment) / Investment.
ROI calculations for marketing campaigns can be complex as variables are many. For marketing ROI, the complicated part is in understanding what constitutes your return and what is your true investment.
For example, returns are calculated differently in the following manner:
Sales generated from the campaign – campaign expenses
Revenue – cost of goods
Gross profit – expenses
On the expenses side, consider media costs as investment along with creative, printing, tools, management and sales cost.
The most real ROI calculation for the business is on the net profit, which is the gross profit minus the marketing expenses. For a short time measurement, the first two might work to evaluate a particular campaign, but overlooking a customer lifetime value can deduce a far accurate ROI.
Managers use the following formula to calculate ROI for profits generated by a single or a group of customers:
(Customer Lifetime Value – Marketing Investment)/Marketing Investment
The calculation also requires understanding overhead allocation and aligning incremental costs over the set customer group or individual customer.
ROI helps you justify marketing investments. During recession, companies often slash their marketing budgets , which could be a wrong decision since marketing budgets are to generate revenue. By focusing on ROI, marketers can help their business to step aside the thought that marketing is a feathery expense that can be cut when times get tough.
It’s essential to measure ROI on all of your marketing investments, after all the objective is to produce profits. To get started, work out your figures and formulas which include overall cost to make the product, cost involved to market and sell the product and the revenue generated. You can further dice it down by customer, and align spend and revenue per customer or a customer set.
Set ROI goals for each of your marketing investments and take control on each campaign. Built with this insight, Plumb5 offers features and functions for marketers to conduct their marketing exercises with thin budgets, as most of the functions are automated and also allow the marketer to measure each and every marketing investment, therefore creating more confidence in spending the right amount of money to meet the goals.
Reasons why Plumb5 has been able to help marketers achieve higher returns on investment:
1. Saves 40% of existing marketing tool spends
2. Automation ensures quick turnaround and saves resource overheads
3. Is an integrated platform, hence saves costs on marketing data aggregation
4. Intelligent scripts save on physical customer engagement and save customer support overheads
5. Technology overheads are cheaper