I’m sure you know the following quote by John Wanaker: “I know that half the money I spend on advertising is wasted. The trouble is, I don't know which half.”
His quote is so famous that WPP, one the world's largest advertising companies, even memorialized it by creating an acronym for the first half of the quote: IKTHTMISOAIW.
Thankfully though, for marketing professionals like me and you, we can now track digital marketing investments more accurately than ever before. So, the problem is no longer that we don’t know which parts of our marketing efforts are successful or not. Today, the problem is, in my opinion, that not enough people invest the time and effort to truly understand what quantifiable value their marketing efforts reap for their company.
With that in mind, in this article, I’m going to explore some high level principles that relate to your return on investment (ROI) for marketing.
Why is Knowing Your Marketing ROI Important?
Knowing your ROI will help you understand—and be able to talk about with coworkers and clients—the fruits of your marketing investments.
It will help you make more accurate decisions about where and what to spend your marketing dollars on (digital ads, outbound marketing, SEO, social media marketing, etc.).
If your ROI changes, you’ll be more able to change course on your marketing investments.
ROI is the best way to quantifiably prove what marketing campaigns are producing value.
How Can You Calculate Your Marketing ROI?
First, think about what a normal return on investment (ROI) consists of. ROI, which is the percentage of profit earned on an investment, can be thought of as:
But that formula isn’t particularly helpful for our purposes. That’s why I prefer the following formula (which is essentially the same, just worded differently):
With that second formula, it becomes easier to tweak it so that the calculation includes your marketing:
I talked extensively about ROI and marketing in a recent episode of our Multi-Location Marketing Show. Check it out if you want to learn more. Or, reach out to us at any time.