Can you truly calculate the ROI of marketing?

Marketing ROI - an inexact science

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“What’s the ROI I can expect back on marketing?” 

It’s the question everyone wants an answer to when spending on marketing but there is no exact answer. Let us tell you why. 

There’s the simple formula many follow to determine marketing ROI:

(sales growth - marketing cost)/marketing cost = Marketing ROI

But what about organic sales?

(sales growth - organic sales -  marketing cost)/marketing cost = Marketing ROI

But what about the organic sales that are a result of brand awareness generated by marketing efforts? You know that tv ad you’re running or the catalogue you’re sending out - how are you measuring the sales that come from this traditional marketing? Do you see what we are getting at?

There are so many factors that affect the effectiveness of marketing efforts - some are controllable, some are not. Everything from consumer behaviour through to competitor activity and product quality play a role in determining sales. When it comes to marketing, while we might be able to tell you how many sales were made online from the newsletter we sent, we have no way to accurately answer the following: 

  • What sales are produced by the campaign aiming to increase brand awareness?

  • Did our position as the preferred brand result from our marketing or the quality of our product?

  • Are we front of mind for the target market so that when they need a product they choose our brand? 

When measuring brand awareness, recognition, improved attitude and positioning, we are measuring intangibles. The monetary value of these elements of marketing simply cannot be measured. 

Marketing is an investment. Every individual piece of marketing communication has a footprint that has short, medium and long term returns. The time lag between exposure to a marketing piece and purchase intention can vary from consumer to consumer. While you might get an ad in front of a persuadable buyer who will make an impulse purchase, that same ad might hit someone who lacks urgency and thinks “I’ll get it later”. 

There are however things we can measure. This is where the importance of setting objectives comes in. Other than an increase in sales, what would you like to achieve as a result of marketing efforts? What is important to you? It might be gaining more followers, seeing an increase in traffic to your website or getting a flood of enquiries. These are all things we can base efforts around and measure. 

When approaching marketing, try shifting your view. While covering costs and seeing an increase in sales is important, there is no truly accurate measurement of ROI. Think about what you’d like to see and how that has the potential to influence sales.

At KEO we’re always measuring. We’re checking social media insights, website analytics, review sentiment and so much more to create a bigger picture of how our work is performing. Once we know what’s working and what’s not working, we can adjust our focus, and this is a cycle that goes on forever to ensure a brand remains relevant to an ever changing audience. ROI is not the only measure of marketing success.