This article was originally published in April 2019.
Have you ever looked at your organization’s marketing spend and wondered, “What do I have to show for this?” Or maybe you spent the six-figure marketing budget and have to justify the same spend for the upcoming budget year. Either way, you need to calculate marketing return on investment (MROI).
First, let’s define it. MROI is the value associated with specific marketing efforts, less the cost of those efforts. To find the MROI percentage, we’ll have to do some simple math.
MROI = (incremental value produced by marketing efforts – cost of marketing efforts) / cost of marketing efforts
The higher the resulting percentage, the better the return. Simple enough, right? Well, maybe not. Let’s talk inputs.
To arrive at the incremental value, you’ll need to know your starting point. We’ll call that the baseline. Ideally, the baseline would be gross margin but could be revenue if gross margin is unavailable. Undoubtedly, it’s best to establish the baseline and method for tracking incremental margin before the implementation of the efforts being measured. However, it is possible to calculate the MROI post-implementation.
When identifying the cost of marketing efforts, including execution costs – printing, ad spend, production, et al. – as well as the cost of any internal and external resources. Discounting the cost of execution will falsely inflate the MROI, resulting in unsuccessful marketing investments that don’t actually grow profit.
Let’s walk through calculating MROI on a digital campaign. First, utilize Google Analytics to determine baseline website conversions from the appropriate source (i.e., Facebook, Google Ads, etc.). If you have an e-commerce business, you may be able to get your baseline gross margin by applying your gross margin percentage to the e-commerce revenue. If not, apply your average gross margin per conversion to identify your baseline.
Next, identify the costs and resources required to execute the campaign – ad budgets, digital assets and resources to monitor and execute.
With your baseline and costs identified, execute the digital campaign. During the campaign, you’ll certainly want to monitor conversions and make adjustments as needed to maximize effectiveness. Don’t set it and forget it.
At the conclusion of the campaign, pull conversions and apply the average gross margin as you did when calculating the baseline. Now, simply input your calculations into the MROI formula to find the campaign MROI.
Once you know your MROI, take action. If current initiatives aren’t producing a positive MROI, evaluate the strategy and adjust accordingly. If some efforts are clearly outperforming others, reallocate more of your budget to those strategies. Estimate the anticipated performance of new strategies based on your own or industry benchmarks, and always know how you’re going to measure success before making the investment. If a strategy won’t measurably deliver, consider replacing it with one that will.