How to Measure and Improve Your Marketing ROI

What is marketing ROI?

Marketing ROI refers to the sales and revenue a business’s marketing campaign initiatives generate relative to their costs. It’s a crucial tool for helping businesses understand the effectiveness of their marketing campaigns.

Tracking specific KPIs can help you see how each campaign performs in specific metrics vital to your business. For example, you can measure an email marketing campaign’s results by tracking sales leads generated, page views, successful lead conversions and social media followers gained.

Various marketing campaigns will have different goals, such as increasing brand awareness or bringing more customers into your marketing funnel. Your campaign’s specific goals will determine the KPIs you use to measure its success. However, revenue is perhaps the most crucial metric for determining true marketing ROI and revealing whether your campaigns are ultimately helping you make money.

How to measure your marketing ROI

Sonya Koerner, CEO and co-founder of Interactive Max Marketing, assists clients in focusing on specific marketing campaign goals, which is crucial for determining marketing ROI. “I always like to help the client understand goals before launching and help establish realistic expectations,” Koerner explained.

Koerner says organizations must establish clear business goals and determine their “break-even ROI” before launching any marketing campaign. “Once these goals are defined, an online marketer can create basic forecasts, provided they have key metrics like the average order value and conversion rate for the client,” Koerner noted. 

With marketing goals and break-even ROI in mind, here are four standard digital marketing metrics businesses use for ROI analysis.

1. Measure conversion rates to assess marketing ROI.

If your marketing campaign aims to successfully convert leads, measuring conversion rates will help you determine whether it succeeds. 

To calculate a conversion rate, divide the number of conversions by the number of ad interactions during a defined time. If you have 20 conversions from 500 interactions, your conversion rate formula would be:

Conversions ÷ interactions = conversion rate (20 ÷ 500 = 4 percent)

Checking conversion rates by channels and devices is essential, so you can invest more in better-performing platforms and devices.

2. Measure cost per lead to assess marketing ROI.

If you’re bringing in leads through your marketing campaign, you must measure how much you spend on each new lead. To determine cost per lead, divide the total campaign spend by the total leads generated through that campaign. 

If the cost per lead is more than what you’ll get after closing the sale, your ROI isn’t positive, and you should make changes.

3. Measure cost per acquisition or sale to assess marketing ROI.

Cost per acquisition or sale is the average cost of acquiring a new customer. To determine the cost per acquisition, divide the total campaign spend by the total sales generated through the campaign. 

If the cost per acquisition exceeds what the customer brings into your business, it indicates a negative ROI. You’ll need to optimize your marketing campaigns to lower the cost per acquisition.

4. Measure customer lifetime value to assess marketing ROI.

The customer lifetime value metric measures what your customers will spend over the length of the buyer-seller relationship. To calculate customer lifetime value, multiply the average sale per customer by the average number of times a customer buys per year, multiplied by the average retention time in years for a typical customer. 

Looking beyond the first purchase and seeing long-term profit yields a more accurate ROI. If customers have a high lifetime value, you can afford to invest more in customer acquisition.

How to improve marketing ROI

Your marketing ROI measurements will show you where you need to improve. Here are some concrete ways to do so.

1. Measure the effectiveness of core metrics.

Not all metrics carry the same weight. Sales, leads and traffic are the core metrics for any marketing campaign. Even so, you should drill further into these metrics to determine their impact on your revenue. For example, when looking at traffic, measure your email bounce rates, conversion rates and unique visitors.

2. Experiment with different marketing channels.

Experiment with various marketing campaign channels to determine the ones that yield the highest ROI. Experiment with crucial methods like the following:

• Email marketing
• Direct response marketing
• Social media marketing
• Brand ambassadors 
• Customer loyalty programs
• Video marketing 
• Paid ads 
• Nondigital marketing methods like print ads, direct mail marketing, billboards, etc.

A campaign’s performance will help you see the channels that best suit your target audience.

3. Implement A/B testing across all campaigns.

Many marketing campaigns drive leads to a website landing page. This page must be effective to turn leads into customers. To improve your results, split-test your landing page elements, such as copy, graphics, navigation links, calls to action and website colors, to determine the changes that prompt visitors to take action. 

Additionally, try A/B testing on email campaigns with different subject lines, images and offers. Compare how recipients react to the elements you’re testing.

Define a specific period over which a split test should run. After identifying a winning campaign, continue optimizing it so you achieve the highest sales or leads at the lowest cost.

4. Focus on your ad spend and income.

Knowing how much you spend at each stage of your campaigns is essential to improving marketing ROI. Tracking your marketing spend can help uncover areas where you are spending too much and getting poor returns. “With these numbers in hand, and by estimating the cost per click (CPC), it’s possible to calculate a projected return on ad spend (ROAS) goal,” Koerner explained. “This helps ensure that the campaign is aligned with the [business’s] financial objectives and drives profitable results.”

Compare your channels’ conversion rates, leads and profits to assess their performance and decide whether the results are acceptable.

5. Conduct market research to understand your target audience.

If your marketing messages aren’t resonating with prospects, you may be missing the mark. Conduct market research to discover what prospects want, what’s important to them and what they’re willing to pay.

Here are some additional ways to research what your customers want: 

• Look at competitors’ offers.
• Monitor social media (yours and competitors’) to see what people are saying. 
• Read online reviews (yours and competitors’).

Ask customer-facing employees to communicate with customers about their needs.

6. Personalize your marketing to improve ROI.

Nobody wants to feel like one of many. Today’s consumers expect companies to know what they want and present excellent deals. According to data from Marigold Consumer Trends, almost half (49 percent) of consumers are annoyed when they receive irrelevant content or offers. 

By successfully using personalization to improve ROI, you can build deeper relationships with customers and help keep your marketing costs in line. The best CRM software can help by providing insights into customer behavior, such as purchase history and product page visits. You can see if they viewed — but didn’t purchase — recommended items or whether they abandoned their shopping cart. With this information, you can tailor offers to meet their needs and improve sales and customer satisfaction. 

7. Utilize email marketing to improve your campaign’s ROI.

While it’s been around a while and isn’t the most exciting marketing strategy, email consistently outperforms other marketing channels. 

Use one of the best email marketing services to streamline email creation, sending and analysis. Use email regularly to inform, entertain and sell. Email is affordable and effective, giving it a high ROI. You can easily automate and personalize emails while making them interactive, driving customers directly to product pages and promotions. 

8. Share data and offer seamless experiences across platforms.

Consumers expect effortless buying experiences across platforms, so your systems must share customer data in real time. If customers have already bought a product, they don’t want to see a promotion for new customers, so your email system must talk to your CRM solution.

Customers also expect to shop from various devices and pick up where they left off, no matter what platform they’re using. So, for example, if you utilize social shopping, you’ll need to sync this data with your website tracking.

9. Reward customer loyalty to boost marketing ROI.

If you don’t have a customer loyalty program, consider instituting one. Frequent buyers like to be acknowledged and rewarded with discounts, early access to new products, special promotions, exclusive events and shout-outs. But it’s not just about the rewards; it’s about creating a relationship with high-value customers and making them feel special. 

Don’t take frequent buyers for granted because you may not retain them. In fact, The Wise Marketer reports that 67 percent of consumers frequently buy from a brand but don’t consider themselves loyal to it. About two-thirds of these individuals say they’d feel closer to the brand if it gave them extra value to maintain loyalty.

Julie Thompson contributed to this article.