Marketing ROI 2020: Best Practices, Formulas, Metrics & Calculator

Last Updated: December 16, 2021

Measuring the return on investment (ROI) on your marketing activities may seem like a challenge despite the advent of marketing analytics tools. To understand the concept and make it easy for you, we have compiled a set of best practices, formulas, metrics, and calculators to help you effectively measure marketing ROI in 2020.

The marketing industry has seen some massive improvements in the last two decades. The rise of social media platforms, artificial intelligence, the internet of things (IoT), and other technological advances have enabled marketers to move to a more innovative form of marketing. And although marketing analytics has evolved with this changing landscape, marketers still find it challenging to demonstrate the marketing ROI. Some of the reasons for this include:

  1. Not tracking and reporting metrics that prove the value of marketing
  2. Expectation mismatch between the marketing department and senior management
  3. Following brute force marketing tactics that lack a sophisticated tracking mechanism
     

A common contention among the top management is, ROI is in the revenue that you generate, not in the likes or comments. However, this is debatable.

In this article, let’s look at how you can show the value of your marketing activities, with five best practices, metrics, and formulas that will make it easy to track the marketing ROI.

What Is Marketing ROI?

Marketing ROI is the practice of measuring the return on investment that an organization spends on its marketing activities. It could be used to measure the ROI of a specific marketing channel, activity, campaign, or the entire marketing function.

The most basic formula to calculate marketing ROI is:

Marketing ROI = (Gross profit – marketing expenditure) / marketing expenditure

For instance, if your organization generated a gross profit of $10,000 while spending $4500 on marketing, the ROI can be calculated as:

Marketing ROI = (10000-4500) / 4500 = 1.23

That means, for every dollar spent on marketing, you generated $1.23.

Learn More: The 5 Critical Skills of a Performance Marketing ManagerOpens a new window

Top 5 Best Practices to Calculate Marketing ROI

In this section, we share the top five best practices that would allow you to measure the ROI of your marketing activities effectively:

1. Be Clear on the Business Value
 

Different functions and departments contribute to the revenue differently. Marketing is one of the departments that has the most overarching impact on business value. In some instances, it is apparent through the revenue generated, while many times it remains implicit.

An article published on HBROpens a new window by Paul Magill, Christine Moorman, and Nikita Avdiushko states, “CMOs often play multiple roles in creating business value within their function — as growth enablers, innovation catalysts, champions of customer-centricity, builders of new capabilities, and stewards of the corporate brand that serves as a magnet for talent. They also create business value beyond their function by collaborating with others in the C-suite to advance the enterprise’s strategy and the CEO’s agenda. Marketing leaders should frame their impact broadly, to include all the ways marketing benefits the organization. Judging its impact through metrics can then follow.

2. Choose the Right Metrics
 

Marketers often get caught up in tracking vanity metrics that don’t prove anything. Pick the metrics that allow you to show the financial impact, and they should be traced back to tangible business outcomes. For example, while measuring conversions, ensure to attribute them to the appropriate marketing activity/campaign.

Even if you’re measuring follower growth, you should evaluate its impact on brand awareness and loyalty.

3. Set the Right Benchmarks
 

Determining the ideal ROI before starting a new marketing activity is a challenge due to the volatility in marketing. However, benchmarking helps you set the right expectations from the get-go. You can use past marketing data and bump up the expectations for your next campaign. Or, if you’re starting anew, you can use the industry-standard data to benchmark your performance.

4. Know Various Attribution Models
 

An attribution model determines how to assign credits to different touchpoints in the buyer’s journey. It enables marketers to measure the effectiveness of different marketing touchpoints. Some of the key attribution models are first-click, last-click, linear, and U-shaped attribution. Here is a resource by GoogleOpens a new window to help you get started.

5. Consider the Uncertainty of Measurement
 

Despite the advanced tracking mechanisms, marketing analytics tools are still error-prone simply because it’s impossible to accurately track user behavior. Therefore, marketers should keep in mind this probable uncertainty.

The HBR article quoted earlier explains, “CMOs should emphasize that their metrics are valid when evaluating whether marketing activities are working as expected, and that the inherent imprecision in measuring marketing’s financial outcomes does not undermine their validity.

Essential Metrics for Marketing Channels

Let’s look at the key metrics you need to measure for various marketing channels:

  1. Email Marketing: Open rate, click-through rate (CTR), conversion rate, campaign ROI, overall ROI, revenue per email
  2. Social Media Marketing: Engagement (post likes, shares, comments), reach, audience growth, impressions, referral traffic, conversion rate
  3. Content Marketing: Traffic, backlinks, page views, average time on page, bounce rate, leads, conversion rate
  4. Influencer Marketing: Referral traffic, CTR, reach, engagement, conversions, ROI 
  5. Pay Per Click (PPC) Advertising: Clicks, CTR, cost per click (CPC), conversion rate, cost per conversion, return on ad spend (ROAS)
     

Learn More: What Is Marketing Analytics?Opens a new window

5 Formulas to Calculate Marketing ROI Effectively

Here are five formulas you can use to calculate marketing ROI at greater depth:

1. Conversion Rate
 

The conversion rate helps you track the percentage of users that completed the intended goal. The goal could be to fill out a form, complete the registration process, or download an app. A conversion could represent a lead or sales, and it is calculated as:

Conversion Rate = (Conversions / total visitors) * 100

2. HubSpot’s Marketing ROI Formula
 

HubSpotOpens a new window has introduced the following formula to calculate the ROI of marketing activities on a granular level:

Marketing ROI = [((Number of leads x lead-to-customer rate x average sales price) – marketing expenditure) / marketing expenditure] x 100

In the above equation, the lead-to-customer rate is the percentage of leads that become your customer. So, if out of 100 leads, 17 become your customers, the rate would be 0.17.

3. Customer Acquisition Cost (CAC)
 

CAC tells you the average amount of money you need to spend to acquire a new customer. You can establish this number by dividing your sales and marketing expenses by the number of customers acquired.

CAC = (Sales and marketing expenses) / number of customers acquired during a unit time

You can tweak the above formula to find out the cost per lead or conversion to understand the effectiveness of a marketing channel or campaign.

Cost per lead (or conversion) = Campaign (or marketing channel) expenses / number of leads attributed to the campaign or marketing channel

4. Average Order Value
 

Average order value helps you understand how much money a buyer spends on an order. This metric is particularly useful for e-commerce businesses. It is calculated as:

Average Order Value = Total revenue / number of orders

5. Customer Lifetime Value (CLV/CLTV)
 

CLTV helps you understand how the average amount of money a customer spends on your offerings during their relationship with your organization. It is calculated asOpens a new window :

CLTV = Purchase frequency * average order value * average customer lifespan

For your company to be profitable, CLTV>CAC.

Marketing ROI Calculators

We have compiled a list of three resources that consist of marketing ROI calculator templates. After downloading the templates, simply enter the numbers to get the result:

  1. Marketing MOOpens a new window : Offers two templates to calculate projected and actual ROI for marketing campaigns
  2. HubSpotOpens a new window : Offers plenty of marketing reporting templates to help you report on various aspects of marketing, including leads, customers, conversion rate, etc.
  3. SmartsheetOpens a new window : Get comprehensive templates that help you measure the ROI of marketing and track essential content marketing metrics
     

Learn More: The Need for a Centralized Analytics TeamOpens a new window

Closing Thoughts

As quantitative and qualitative marketing analytics tools have become more sophisticated, they have enabled marketers to track user behavior on a more refined level. But this all can lead to overwhelm you without clarity about which metrics to track.

Make sure to set up the right systems and workflows in place to ensure that these tools help you measure the ROI of your marketing activities.

How do you plan to get started with tracking marketing ROI for your organization? Let us know on LinkedInOpens a new window , FacebookOpens a new window , or TwitterOpens a new window . We would love to hear from you!

Indrajeet Deshpande
Indrajeet Deshpande

Contributor, Ziff Davis B2B

Indrajeet is a Marketing professional with 6+ years of experience in managing different facets of Digital Marketing. After working with SpiderG - a Pune based SaaS startup, he is now ready to work as a freelance marketer with different SaaS startups helping them with marketing strategy, plan and execution. His love for old-school hard rock and metal music culminated in taking up guitar and starting www.guitargabble.com. He’s studying Stoic philosophy, experimenting with productive habits and documenting the progress. Get in touch if you’re keen to know how you can implement pro-wrestling tactics in your marketing, community building and storytelling.
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