Why Is It Important to Know Your ROI?

Phonexa

4 minutes read

Every marketing campaign will feature a discussion of the campaign’s ROI, or return on investment. But to some, the importance of knowing your ROI isn’t always clear. There may be a debate as to why marketers should get caught up in such details.

In an interview with the Harvard Business Review, Jill Avery—a Senior Lecturer at Harvard Business School—had a blunt message for marketers who aren’t interested in their ROI. “Good marketing is not about winning creative awards or telling interesting stories,” she says; it is squarely about “delivering customers and sales.” In short, knowing your ROI allows you to accurately measure the success of your marketing campaigns.

What is your ROI?

Your marketing return on investment—sometimes abbreviated as MROI—is critical in that it gives a snapshot of what kind of revenue or conversions your marketing campaign is able to generate in comparison to the resources that were put into it. For the most basic example, imagine you put
£50 into starting a lemonade stand: building the stand, buying the ingredients, and putting up posters. Then you made £125 in sales—that would mean you had £75 in return profits or an ROI of 150 per cent.

This calculation comes from a simple formula of ROI (per cent) = [(Revenue – Investment) / Investment] x 100.

By looking at your ROI in terms of a percentage, rather than the raw number, you will have a clearer vision of your ROI and be able to compare it across campaigns of various sizes. Having an ROI of £1,000 sounds impressive, but it becomes dramatically less so if the ROI percentage is only 10 per cent.

The Importance of Knowing Your ROI

It should be apparent, then, that having an accurate understanding of your ROI is valuable for businesses for many reasons. Essentially, your ROI will give you a “score card” for your marketing campaigns. It answers fundamental questions regarding the allocation of resources or the impact of the creative branded messages in the campaign.

Having this knowledge is useful for many reasons. If you’re in the marketing department of a larger company, you can use a high marketing ROI percentage to prove to leadership that they should allocate more resources to your efforts. You’d have a difficult time getting any kind of budget increase without first having proof that you are getting results with the budget you already have.

The independent marketers has even more need for a thorough understanding of their ROI. In many case, your entire budget and business plan will revolve around having a very high ROI percentage. Digital marketers with few overhead costs need to know precisely what their ROI is for any given campaign to determine how much revenue they’ll be able to pull in. Once a marketer has a strong understanding of their return on investment, they will be able to answer many more questions about their business. They will be able to plan campaigns more efficiently once they know which efforts will yield the highest ROI percentage.

Furthermore, once a marketer knows their ROI, they will be able to run a tight ship and hold themselves accountable. The ROI is a perfect way to attach a specific value to the work you’re doing. As a result, that number can be very powerful and it becomes vastly important that the number is accurately calculated.

Complications When Calculating Your ROI

As important is it is to know your ROI, it isn’t always the easiest figure to calculate. While the formula ROI (per cent) = [(Revenue – Investment) / Investment] x 100 is certainly straightforward, what can be difficult is determining exactly how much revenue was the result of any given marketing investment. If you’ve spent funds on Google Ads, email marketing, and digital banner ads, who can you assign your incoming revenue to the marketing channel that brought it in?

The solution can come in the form of an ROI-driven marketing platform with call tracking, lead management, and email marketing that is able to gather this kind of data. The right platform can collect necessary information that tells marketers which of their efforts brought in every lead. This allows you to compartmentalize and sort all the revenue generated by each marketing channel so that you can have a definitive ROI percentage for all your marketing efforts.

It’s entirely possible, for example, that you put some £2,000 into paid search ads and £5,000 into radio ads and get a return of £25,000 in revenue. That can seem great, but a granular analysis of your ROI may reveal that you’re getting 400 per cent ROI on the paid search ads and just about 150 per cent on the radio ads. You’ll likely want to scale up your paid search and hold or reduce your radio budget. The next time you run your campaign, you could see even higher revenue returns for spending less.

Stay on Target

Ultimately, for marketers who want to see the quantifiable success of their marketing efforts, they’ll need to put in the effort to calculate their ROI. While the formula is simple, the collection of data is much more complicated. Marketers can use technology to track marketing revenue across different channels, allowing them to discover new insights from targeted ROI percentages. Such revelations can be used in preparing budgets and planning campaigns in order to become more efficient and increase profit margins.