How to Measure the ROI of Your Company’s Marketing Efforts

Want to know how to tell if your marketing efforts are producing positive results for your business? As a business owner, knowing how to track the performance of your business is very important. But do you know how to track your marketing ROI or how to read the data curated by your digital campaigns?

If you tend to mix up marketing ROI with "results," don't worry. We're going to explain the difference. By the end of this blog, you will be a marketing ROI pro!

ROI vs. Results

You're not alone if you tend to use ROI as an umbrella term for "results." Many business executives make this mistake, and that's a problem we need to fix. The results of a business can apply to many different things. For example, when a business generates leads with a campaign, those are results. Additionally, when a business hosts an event, the number of people in attendance are results. If a business runs a fundraiser at the event, the amount of money earned from the fundraiser can be measured as an ROI. ROI requires an outcome that can be measured in dollars, whereas results can be expressed in nonmonetary amounts. In this scenario, the results of the business event are the attendees, the attendees are the results of the business event, while the money raised applies to the ROI produced by the event. See the difference?

It's important that business owners understand this key difference so they can accurately measure the success of their business's marketing efforts.

Check out our blog: How to Create a Winning Social Media Marketing Strategy for Your Business to learn more!

Calculating Marketing ROI

Now that you understand the difference between results and ROI, let's explain how to go about calculating marketing ROI.

Often times, marketers have a difficult time tracking their ROI. Why is that? Shouldn't the marketing department be the experts when it comes to ROI? Essentially, yes, they should. But, marketers often don't know how to accurately calculate their marketing ROI because of two reasons: they don't fully understand what exactly they have spent with their marketing efforts, and second, they don't understand what they have earned. When marketers don't know how to calculate these two things, they don't know the true ROI of their efforts and ultimately can never explain how their efforts have helped a company to earn money.

This is a problem. As a business owner and marketer, we want you to understand how to tell if your marketing efforts are producing positive results. We want you to know how to calculate your marketing ROI so that you can ultimately build a more successful business. Here's the formula you need to know:

The Formula

The ROI formula is a simple financial mathematical equation: start with the money you earn, then subtract the amount of money you spent from the amount you earned, and then divide that amount by the amount you spent. For example, if a business spent $5,000 and earned $10,000, the formula would look like this:

(10,000-5,000)/5,000=1.

ROI is usually expressed in a percentage, so the result of this formula is 100%. For every dollar the company spent on its campaign, it earned two dollars.

While the calculation looks simple, coming up with the numbers to plug into the formula isn't nearly as simple.

What Have We Spent?

How do you determine the amount you have spent? A business' marketing budget requires the consideration of more than just the direct dollars spent on things like Facebook and Google ads. Both hard and soft dollars make up a business's marketing budget. The hard dollars encompass aspects such as the money spent on ads, the salaries of the marketing team, etc. Soft dollars include labor, opportunity costs on social media, etc.

When considering both the hard and soft dollars that go into the total cost of a marketing campaign, a business will quickly realize that it takes a lot of research to accurately calculate the "spent" number for an ROI formula. So get on that research!

What Have We Earned?

The earned number in a marketing ROI formula isn't simply determined by the number of leads that came through. That's ROAS. The amount earned from a campaign is determined by how those leads came through - the marketing efforts. This is where Google Analytics comes in handy. When analyzing the amount of money a campaign earns, a business can't give all the credit to the last thing a customer did before they became a conversion. Before they become a customer, every buyer goes through a journey.

Think about what you do before you make a purchasing decision. You likely talk to your friends about it, do a little research of your own, and even read reviews before you make a purchase. Your research could include reading past blog posts, watching videos on YouTube, or checking out the company's social media feed. You may reach out to your friends through a group on Facebook. All of these steps involved in a customer's journey deserve credit for the customer's decision to make a purchase.

Google Analytics has five attributions they give to this journey: first touch, last touch, linear, time decay, and position-based. Google Analytics also has a system called Attribution 360 that "allows users to build a 'data-driven model' using a machine learning algorithm called Shapley Game Theory to try and figure out what channels are getting credit. (Social Media Examiner). This Attribution product works to identify at what point of a buyer's journey they are most likely to convert.

When a business owner has access to this data and uses these built-in models in Google Analytics, they can better understand everything that affects their customers and which channels are the most important. When a business understands a customer's buying journey, they can better understand all the components that go into the "earned" number of their ROI formula.

Social Media Networks

Something else to consider when thinking about your attribution equation is organic social media from social networks. Essentially, a social network is anywhere that people can perform engaging behaviors. These include liking, sharing, and commenting. This organic social media becomes referral traffic for your business instead of just social. Unfortunately, a lot of social networks don't have built-in analytics. However, a business can use UTMs to track the origin of the traffic to your website. What's a UTM?

Definition: UTM codes are one of the ways to track performance from any digital marketing campaign. UTM or Urchin Tracking Module is a simple code that can be attached to any URL to generate Google Analytics data for digital campaigns (The Economic Times).

Now that you know how to determine the "spent" and "earned" numbers of your formula, you can accurately calculate your marketing ROI.

Using Social Media Traffic to Analyze ROI

How do you determine if your marketing efforts are working? Measuring your social media traffic is a great way to help you determine which marketing tactics to continue with.

How do you measure your social media traffic? As we mentioned before, you can track the origin of your traffic with Google Analytics and UTMs.

The Source/Medium Report on Google Analytics allows you to see the acquisition and behavior data of your traffic. Basically, with this report, you can see where your traffic is coming from, how long they stay on your website, how many pages they visit, and if they convert. When analyzing this data, it's important to pay attention to trends in the data, not necessarily the actual numbers. If a certain source is bringing a lot of traffic to your website, but that traffic is either bouncing and not converting, then that source really isn't valuable. You want to focus on which sources are producing the least bounce rate and ultimately the highest sales (or whatever your goal is for that source). Once you determine which source is helping you toward your goals, then you know where to put your marketing efforts.

Using UTMs

Tagging your links with UTM parameters also allows you to determine which source brings the most traffic, but also more details. With a UTM tag, you can see how much your traffic purchases and track their behavior on your website. A UTM allows you to see what a visitor does before and after they purchase, and where they drop off your website.

If you want to start tagging your links so that you can track your traffic, you can use the Social Media Examiner's UTM Builder. They provide a very helpful list of instructions that will lead you through the entire process. Simply click on this link and once on the page, scroll down to the section titled "Create Your Own UTMs with the UTM Builder Tool." The UTM Builder tracking tool will keep your UTMs structured and ensure all of your information is organized and in one place.

Conclusion

Google Analytics is a great tool for measuring your business' marketing ROI. Now that you know how to calculate ROI and how to read the data on your Google Analytics account, you can create a successful marketing strategy! If you want help with executing your marketing strategy, we would love to do so for you! Contact us to set up a demo and we can chat about your goals and how we can help you meet them in 2020!