This article is all about Return on Investment, ROI for short, in marketing. We answer the following questions, among others:
You will also find useful tips to increase your ROI in our article.
What does return on investment mean?
In a nutshell, return on investment in marketing is the return on the capital you put into marketing. After all, it is your aim to win as many customers as possible with your marketing measures. You can measure whether it is also economical for you, but you need clear key figures for this. If marketing measures are successful, this can always be attributed to a high return on investment. In plain language, this means that you can generate high sales with little capital invested, which in turn leads to a company profit for you.
The benefits of calculating the return on investment
Why the calculation of the ROI is advantageous could be very clear from the definition. For example, the ROI provides important data for:
- The analysis of individual business areas and investment objects
- The determination of the overall performance of a company for a past period
- The planning and control of future investments
This is how you can calculate your return on investment
Calculating the return on investment is fairly straightforward. The so-called ROI results from the fact that you simply divide the profit made by the costs that you have used for your marketing. This results in the following formula:
ROI = Return on Sales x Return on Investment
It is important that the result must always be greater than 10 percent. If this is not the case, your campaign was not economical and therefore not effective. At first glance, the principle of return on investment may sound very simple. But even here there are some difficulties that need to be considered. That’s why we want to give you tips in this article on how you can calculate a clear and meaningful return on investment.
Clear attribution is crucial
In order to be able to clearly name your return on investment, you must first allocate the costs precisely. When it comes to costs, however, you must not only include direct expenses. For calculating the return on investment also include
- your planning costs
- the costs incurred as a result of the expenditure of time
- the capital costs incurred
- all other incidental costs incurred
Now let’s continue with the profit. You shouldn’t look at it as a whole, you have to allocate your profit to the appropriate campaign. In many cases, of course, this is not clearly possible. Nevertheless, you should try to define whether a customer ended up with you because of your campaign or whether it is a customer who accidentally “strayed” to you in the corresponding marketing channel. This way, you can measure every marketing effort you’ve made in every channel and find out if it was effective and economical for you.
Also check other metrics for successful marketing
With the calculation of the return on investment, you have already taken a big step towards economical and effective marketing. But the ROI alone will not help you in the long run, because you also have to look at other key figures. The KPI also plays an important role for you so that you can check your campaigns for other factors. The KPI (Key Performance Indicator) is an important performance indicator that you can use to measure your marketing efforts. After all, you want or should know how
- lead generation generally fails
- it is about the number of converted leads
- high is the ratio between one-time customers and multiple customers as a percentage
- the total costs for a lead are high for you
These numbers are just as important to you as the return on investment. Because only if you know these numbers exactly can you also optimize your marketing measures if necessary. The following principle applies here: the more leads generated in a campaign, the more successful your campaign was. Of course, the leads alone do not help you to flush the money into the till, because customers still have to be generated from these leads. Then one speaks of the so-called conversion rate. But you can also see something important here. If a lot of leads are generated and the conversion rate is bad, then you will have to change your target group. If you have a high conversion rate with low leads, then you can make your campaign a little more offensive and broader.
5 tips for increasing return on investments
In the paragraphs above, we have shown you which numbers are important to you and how you can determine them. Now we want to give you a few practical tips on how to increase the return on investment.
- You need to keep checking your targeting. You should therefore check whether you can also reach the leads that can then later be successful. If this is not the case, you need to optimize your campaign accordingly.
- Keep checking your conversion rate. The better the value here, the more effective your campaign is. If you can increase the conversion rate, you automatically increase your return on investment.
- Try to generate multipliers. Especially in social networks, you can generate multipliers who share your messages. For you, this means that you can minimize your costs and thus increase the return on investment.
- Find the heart of your campaign. Your task is to find out which part of your campaign is doing particularly well. In order to increase the return on investment, you can reduce your campaign to exactly this core.
- Keep adjusting your campaign. You should never just let her go like that. Pay attention to the feedback you get, take comments seriously and optimize your campaign accordingly. You always have to keep in mind that a campaign and optimization is a constant process that needs to be adjusted again and again.
Return on Investment: A metric with weaknesses
The calculation of the return on investment is one of the standard procedures when evaluating an investment project. This applies to both the forecast and the subsequent success control. Because the key figure is easily determined and ensures comparability. However, the ROT is only of limited value when it comes to showing financial effects. It is a book-value-oriented key figure that alone allows conclusions to be drawn about the past. Investment risks and external influencing factors, such as economic and market risks, are also not taken into account. In addition, it is difficult to compare projects with different durations, since the ROI always refers to a specific period of time.
Conclusion: never stop optimizing!
The return on investment (ROI) can give you important clues as to how successful your marketing campaigns are currently running. The calculation here is relatively simple: you have to earn more money with your campaigns than you have spent. However, this is not always easy to implement and requires constant observation and testing. It is important that you keep adapting your campaign to your target group. So watch how she reacts to the campaign and what feedback you get. You should always take this to heart and keep improving your marketing accordingly.
Optimizing and increasing frequently asked questions (FAQ) about return on investment
The return on investment comes from the marketing area and is the return on the capital that you have used for marketing. For this, you need precise key figures to find out whether your marketing measures are economical for you.
How to calculate the return on investment?
The return on investment is calculated using the following formula:
ROI = Return on Sales x Return on Investment
Why should I calculate the return on investment?
The ROI offers you the following advantages:
– Analysis of individual business areas and investment objects
– Determining the overall performance of a company for a past period
– Planning and control of future investments