A simple formula to measure success

Return on investment (ROI) is the primary measurement of marketing effectiveness. As our marketing efforts are under increased scrutiny and our budgets are under threat, we need to be able to make the case for the work that we do. Measuring ROI is the best tool to help us.

The metrics that result help reduce arguments based on opinion and give you answers about what really works

Measuring marketing ROI is about more than justifying budgets. It allows your organisation to move forward, develop audiences, and deliver more income and deeper engagement with greater efficiency. The metrics that result help reduce arguments based on opinion and give you answers about what really works while allowing you to test strengths and weaknesses.

The obvious benefits

A study from Columbia Business School revealed that marketers recognise the need to measure ROI but are unsure of what it means and how to put systems in place. Add to this the rapid growth of new digital marketing tools and the opportunities and challenges they bring and it can be hard to know where to begin.

The key is just to start, be agile and keep learning to deliver innovative marketing and effective measurements that get results.

The basic formula

ROI measures the profitability of an investment, decision or action. It’s a simple formula that takes the return of an investment and divides it by the cost.

The resulting figure is multiplied by 100 to express ROI as a percentage. A percentage greater than zero indicates a profitable investment. A low or negative percentage means it had a low return compared to its cost.

Knowing the ROI of a marketing campaign allows you to assess whether the investment was worth your time and money. It helps you analyse what worked well, what didn’t and adjust your future plans accordingly.

This basic ROI calculation is a good starting point for getting a quick ‘temperature check’ on campaign performance. It works well for basic comparisons such a first and second campaign or whether improvements are being made from one month to another.

ROI in practice

Imagine you are promoting a theatre event to an e-list of 100 people and you want to test the effectiveness of your email marketing. You email your list with a unique link that gives each recipient the opportunity to buy a £10 ticket and meet the artistic team. You set yourself an objective to achieve an 80% positive response.

To work out the ROI you need to calculate your marketing costs. In this case your main costs will be time spent. Let’s say your investment cost was £150. If 28 people from your e-list purchase a £10 ticket, your income from the investment is £280. Using the basic formula, you can calculate that your return on investment is 87%.

This is a simple example but it’s told you that, although your 80% target seemed high, email marketing was an effective way to reach your audience. It also suggests your audience respond to opportunities to meet the artistic team. You could check this using simple A/B testing where group A are offered £10 tickets and group B are offered £10 tickets and a chance to meet the team. More conversions from group B would confirm that engagement opportunities improve success.

While it can be measured manually, most email management software will measure ROI for you. Many suppliers also have plugins that integrate with Google Analytics, which allows you to see campaign ROI alongside conversion rates, revenue generated, page views and goals completed.

Google Analytics enables you to build a clearer picture of the multiple touchpoints that contribute to a conversion. Google Support provides simple instructions to help you set up multi-channel funnels and attribution modelling. These allow you to track the full customer journey and identify each online channel that has helped achieve your goals.

Pitfalls to avoid

There are two key pitfalls to avoid when measuring return on investment:

• Values for costs and returns: You want to maximise the return on the money you spend but it’s just as important to factor in the time you spend. Investing your time wisely leads to more effective marketing decisions. Time can be a major cost, particularly in digital marketing, so it needs to be added into the equation. Similarly, return isn’t just about income. You may need to include qualitative measures that look at involvement, engagement and brand value or appreciation.
• Vanity metrics: Forget about visits, likes and number of followers. Instead, concentrate on activation, retention and referral. You want people to enjoy the experience enough to come back and recommend that experience to others.

A five-step plan

Here’s a five-step plan to improve marketing ROI:

1. Decide what success looks like and define key performance indicators (KPIs) to monitor regularly. Ask yourself what the best indicator will be for that success and what level of detail will be most useful.
2. Set SMART objectives. You can’t measure ROI unless you have a clear understanding of what you’re trying to achieve, be that reaching a specific target market or building loyalty.
3. Gather data into a single ‘database of truth’. Keeping the collection and bringing together of data at the top of your agenda will pay dividends.
4. Test and monitor your objectives. Build your KPIs into your marketing plan. Be clear about what you’re measuring and why. Your KPIs should be of organisational importance and you should be able to track them regularly and consistently over time and communicate findings easily.
5. Use your data to make informed decisions and achieve maximum return from your limited time and budget.

Carol Jones is Head of Consultancy Wales at The Audience Agency.
www.theaudienceagency.org
Tw: @carol123jones

This is a summary of a Guide to Measuring Return on Investment (ROI) that can be found at CultureHive.