Marketing Myth: You Can’t Track ROI in Marketing
Posted by Leisa Redmon | June 15, 2020
We all know that in order to really make an impact on your business, you have to be able to maximize effectiveness and minimize costs.
That philosophy should freely disperse itself within your marketing department, which makes dispelling the myth that you can’t track ROI in marketing that much more important to the success and growth of your business.
What is Return on Investment (ROI)?
Return on Investment, or ROI, is the ratio between net profit and the cost of the investment. A ratio over 5:1 is considered strong for most businesses, and a 10:1 ratio is exceptional. (A 2:1 ratio, for example, would indicate your efforts are breaking even, which might not justify further support of the campaign.)
This number speaks to the efficiency and effectiveness of a marketing campaign and can help dictate if current campaigns are fruitful or should be reevaluated.
As a good rule of thumb, your business should also calculate ROI in percentages rather than dollar figures. This helps to keep a neutral picture on the degree of change rather than making assumptions off of simple dollars and cents.
The importance of tracking ROI
Far too many businesses, with the best of intentions, opt for the low-hanging fruit in their marketing strategy. Purchasing a surplus of TV ad space, for example, might appear to be a lucrative effort because “everyone has a TV,” but unless you’re able to fully track and take into account how your marketing dollars are being used, it’s virtually impossible to find a precise correlation between the two.
Tracking the ROI of your marketing efforts is critical for any business because you can’t manage what you can’t measure. When you’re able to combine your strategy with proven data, each next step grows more clear, and you’re able to increase the efforts that are working while adjusting what’s not.
Traditional Marketing vs Digital Marketing
Not only are traditional marketing methods quickly moving aside for their modern-day, digital marketing counterparts, but traditional methods are proving exhaustively costly, as well.
Efforts produced by billboards, direct mailers, magazines and TV ad space are known to average $350 per lead; however, it’s fundamentally more difficult to obtain a firm ROI number through traditional methods due to the uncertainty of an individual’s initial touchpoint.
When looking at gross sales margins and dividing that number by the cost of running the ad, a well-run TV ad campaign should produce between 300 and 500 percent ROI, according to the Chief Marketer website. This percentage equates to a 3:1 - 5:1 ROI ratio which is subpar for ad spend, as stated above.
Digital marketing, however, is much simpler to track because data-backed campaigns can prove ROI with an airtight, factual, digital trail of the customer’s journey. This data helps any company make educated decisions on future marketing and sales efforts.
Let’s say, for example, a local sportswear company doesn’t have the bandwidth to create a media campaign that promotes their newest seasonal line. The sportswear company can pay a local athlete $300 to promote their product on their social media platforms. The sportswear company gives the athlete a specific tracking URL to use to help the company see they obtained 50 new visitors to their website, in which 20 people placed a product in their shopping cart, and 15 people purchased the $50 product.
Tracking the ROI in marketing uses the following formula:
(Customers x Average sales price) - Cost of ad spend / Cost x 100
So, tracking the ROI in this sponsored content example would look like:
[((20 x .75 x $50) - $300)/ $300] x 100 = 150%
For this particular partnership, the sportswear company ended up making 150% profit from this campaign, proving a positive ROI.
Your company is investing in marketing one way or another. With these data points available, your marketing department is able to track a lead from initial touch through the conversion, and get an exact dollar amount to associate with it.
This information is invaluable when identifying ways to maximize, or validate, your marketing dollars.
The more data obtained, the more confidence you can have in making both practical and strategic decisions for the future of your company.