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What is ROI Marketing?

Companies spend a lot of money on marketing communications. Global spending on media is projected to reach over 2 trillion dollars. This is an incredible amount of money. We can assume that a good amount of this money is being spent on initiatives that aren’t worth it or simply don’t work. We assume that our initiatives are good choices, but how do we really know? Marketing ROI analysis can help us determine an answer to that question.

What Is Marketing ROI?

Marketing ROI means what you would think it does. It Is a way to measure the return on investment for a company spending money on a marketing strategy. It can also be called MROL (Marketing Return On Investment) or ROMI (Return On Marketing Investment). It can be used to measure a specific marketing initiative or the overall marketing strategy.

Why Would a Company Use Marketing Return On Investment?

There are many good reasons for a company to choose to consider marketing ROI. One reason is to justify spending on a marketing initiative. If tour company is on the fence on a marketing strategy, this is a great method to convince them that spending the money would be good for the business in the long run. Another reason to use marketing ROI is to make financial decisions. If you have a limited budget it may call for you to make tough choices. MROI can help you make those decisions. The marketing initiatives that give you the best benefit would be the ones that you would choose to lose. It can also help paint the picture of future spending levels so that funds can be earmarked in the budget in the future. When using MROI to measure your company against competitors you have a useful tool. You can use the MROI data to see where you stand compared to other companies While all information on competitors are not fully available managers can access public, published financial statements to estimate an MROI for their different competitors. Finally, MROI can keep marketers accountable. If the hired marketers make beautiful things and have creative ideas, but those ideas don’t convert to actual profits then they are not doing their job. If you are consistently measuring the effectiveness of their initiatives keeps them using your funds responsibly. This attaches a number to a field that used to be more abstract. Now it can be measured and assessed like anything else.

How to Calculate ROI?

It is pretty simple to calculate ROI. The goal of ROI calculation is to end up with the largest number possible. To do the calculation you first take the financial value that has been gained because of making the investment in marketing and subtract that by the actual cost of the investment. Once you get that number, you divide it again by the cost of the marketing investment. The number you get is your marketing return on investment.

Challenges to Calculating Marketing Return On Investment

While the actual calculations pretty simple there are some complexities that can be overlooked. The only thing that is concrete is the amount of money you actually have spent, or plan on spending. After that thing can start to get a little hazy. Deciding what to include and what to leave out in the way of cost can leave you with a number that is inaccurate either by being way too high or too low. And after that, it gets even more confusing. Trying to put a number on what you get gained can be difficult. In order, to straighten it out a bit, consider the benefits that might be apart of MROI, then consider if you would have received that benefit if you would have chosen not to pressure that particular marketing strategy. This can be further cleared up by using A/B testing to assess the incremental lift that a marketing initiatives can give. Another issue it that marketing results are never instant. Some can take years to work. This page in time can complicate the process. Another challenge is that it can be nearly impossible to separate the benefit given for one marketing element or another. Most companies use a layered marketing approach so knowing what elements are working what the ones that aren’t would be a challenging goal.

Mistakes That Companies Make Using MROI

With all of the potential for confusion, there is a high probability of mistakes made. It can be easy to only consider the benefits in the short term even if long-term befits would be the more useful to include in MROI. This can be a tempting mistake when bosses see money spent, and don’t understand the benefit. This could result in a lack of patience that could hurt your marketing initiatives. The goal is to remember that while marketing costs might be current in your budget, remember that long-term benefits, and attempt to calculate them into your marketing return on investment.

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