If you’re considering working with a marketing agency, one of the first questions you may have is around Return on Investment (ROI). Often this term is misunderstood or misaligned, so it’s important to think about how to measure ROI in marketing over and above financial terms.
Firstly, ROI is a performance measure that’s used to calculate the efficiency and/or profitability of an investment. It’s a simple calculation where you take the total revenue earned and subtract the cost of investment.
Most people think of ROI as monetary value, of course, this could be the ultimate goal, but it can take other forms. For example, brand awareness, which helps position your business at the forefront of your customer’s minds, which can lead to increased sales further down the line. Time is also an outcome achieved by outsourcing, and it’s likely you may not see a direct financial comparison for time gained vs money spent, the time you are buying will result in income later down the line, if you’re able to use it effectively and strategically.
By monitoring your investment, whether in-house or outsourced, you can begin to build a better understanding of which channels are most effective for your product or service. You may find that traditional marketing efforts, like leafletting or printed ads, provide a better return than organic social media, for example. Alternatively, you may find that PPC (Pay Per Click) campaigns are the best way for your business to generate sales.
Once you know which marketing channels work best for you, you’re able to push forward with efforts that will:
Let’s break it down with an example:
You hire a marketing agency which requires an investment of £35,000 a year from your business. It’s also worth noting that your standard investment with an agency might exclude things like search engine optimisation (SEO) and paid advertising.
By the end of a full year working with your marketing agency (which required an investment of £35k), your business has made £100,000 in sales. The basic ROI calculation would be:
Total Income – Marketing Agency Investment = Return on Investment (in this example the ROI would be £65,000).
It’s worth noting that you can do more comprehensive calculations on ROI. However, some of the costs including product development, web development etc should already be built into the cost of your product/service.
Businesses can often outsource different elements of marketing, for example SEO and PPC, to different agencies. So for a more accurate calculation, be sure to track your ROI depending on the investment in and return on individual marketing activities.
You can measure brand awareness in the following ways:
If you have hired a marketing agency to help increase your brand awareness, your ROI might relate to reach on social media and you’re going calculate your ROI based on web traffic.
This calculation would see you taking the investment cost and dividing it by the number of websites click-throughs you received. Make sure to record starting analytics for a more accurate result and review them regularly.
In the event that the click-throughs from, say, a paid ad don’t result in increased sales, we’d recommend:
The term marketing covers an array of promotional activity. When we say marketing, what we’re talking about includes:
When these different marketing types are brought together, they form part of the marketing mix. And with that in mind, the results you’ll see from each form of marketing may differ, some could be easier/more difficult to track.
ROI for service providers can be a little more difficult to calculate and monitor. This is simply down to the potential of repeat business.
While product-based businesses can see repeat purchases, these can be few and far between depending on the product being bought. For example, a washing machine isn’t likely to be replaced sooner than say 7-10 years after it’s initial purchase and it’s not a guarantee that the consumer will return to your business for their next unit. Especially when markets are competitive!
Where a business is providing a service, the return on investment will increase depending on the life cycle of the customer journey. For example, a mortgage broker may see their clients come back 3 or 4 times over the lifetime of their 30 year mortgage. This could result in the adviser taking home 3 or 4 sets of commission/fees from one lead generated as a result of paid advertising on social media.
If you made it to the end of the blog, thanks for reading! You might also be thinking that you don’t have the skills or time in-house to get the most out of your marketing and/or social media activities.
If you’d like to chat through the outsourcing options, we’d love to hear from you. And if you’re not 100% sure whether you’re ready to outsource we have written another great blog that could answer any questions you might have!
Until next time, stay social!