How To Track Your Marketing ROI

Before we jump in to the ‘how to’ element of this post, I think it’s important to cover off a few different aspects of ROI so we understand just what it is, why it’s important to track it and how to actually calculate it. Once you understand those points, we can look at how to actually go about tracking your marketing ROI.

What is Marketing ROI

ROI stands for “Return on Investment” and is a key measure of the success or otherwise of your marketing campaigns.  Ultimately, the number of leads generated, clicks received or likes gained pales into insignificance if your goal of marketing your business is to make sales with a positive return.

So when we’re talking about ROI, we’re not just looking at goal conversions, but we examine the monetary value of those conversions.  <

Ideally you want to be able to say, for every £1 spent on marketing, we return £X.

Therefore it’s important to get visibility of the full funnel, right the way from lead generation, through to customer conversion and repeat purchase.

Why it’s Important to Track Your ROI

I’m a big fan of the phrase ‘You can’t manage what you don’t measure’ and this couldn’t be more true in marketing. I’ve heard countless times from many companies that they are doing marketing but they don’t know what it’s producing for them. With the tools that are available nowadays, almost every activity can be measured and attributed to a return. This goes for both online and offline.

Without knowing what results your marketing is achieving, how can you make educated decisions as to where you put your marketing spend and where to focus your efforts?

I’ve recently dealt with a company who was spending most of their marketing budget on Facebook ads as the cost per lead was cheaper than other channels, however, when we put in place the correct tracking metrics, we saw that whilst the cost per lead was a lot cheaper, the sales team had a much lower conversion rate than on leads generated by Google AdWords. We calculated that the ROI was far greater (about 4 times) for AdWords than Facebook.

This was a game changer for that business - The realisation of which channel produced better results for their sales meant that they could focus their efforts on AdWords which gave them more sales, more profit and more growth.

How to Calculate Your ROI

via GIPHY

On the face of it, calculating the ROI is pretty straight forward. It can be defined as the profit made from the marketing campaign expressed as a percentage of the marketing spend or as a formula:

(Revenue generated - Costs) / Costs X 100

As an example, if you invested £1000 into a campaign and it generated £2000 profit, then your ROI would be 200%.   

But is it Really That Easy?

Well, yes it is until you start considering the variables that could be put on both the profit and costs side of the equations.

via GIPHY

To define the profit, are we talking gross or net profit? What gets taken off the revenue to determine the profit? Are we including the cost of delivery or manufacturing of the product or service? Do we include the costs of the time taken to produce the marketing campaigns, the overheads of the business and so on?

Then what’s included in the revenue generated? Are we talking about the revenue for the single transaction only, or the lifetime value of the customer? Do you know the lifetime value of the customer?

Then do we consider only the short term return on marketing investment, i.e. calculating the revenue as generated within a short period of time for example, within 1 month of the lead being generated or the campaign influencing the revenue, or do we look at a longer term calculation and take into account the value of brand awareness (how are you going to measure this?) and database building?

Add to this the issue of attribution. What attribution model are you going to track? An attribution modeling is a very complex subject, which I’m yet to see a perfect system, but the common models are:

• Last Click Attribution - Where the marketing source only gets the credit if it was directly responsible for the conversion.
• First Click Attribution - Where the path to purchase was initiated by the campaign, however, there may be multiple other activities that nurtured and drove the buyer down the buyer’s journey.
• Linear - Where each action that led to the conversion gets equal amount of credit.

There are others, but it’s outside the scope of this article.

If we look at an example where as a marketing manager, you are running multiple marketing channels and you see that someone converted by following this path.

Firstly they clicked one of your Facebook Ads, visited the site and did not convert.

Later that day, they did a Google search and clicked an organic link but still didn’t convert.

The next day they saw one of your Google Adword, clicked on it, but again, did not take the conversion action.

Finally they did another Google Search, again clicking on one of your Google ads but this time made a purchase.

If you were using the last click attribution model, then Google AdWords would get the full credit, however if you were to use the first click model, Facebook Ads would claim the credit and if you decided on the linear model, there are four actions, so each action would get 25% of the credit, so you’d attribute the conversion as 25% to Facebook Ads, 25% to Google Organic and 50% to AdWords.

So What Should you Actually do to Track Your Marketing ROI?

The first thing is not to get confused by the above. As mentioned, there are a number of different variables, the thing to do here is to decide which variables you are going to use for your profit and your costs and which attribution model you are going to use. Then document this and stick to it. Don’t be tempted to change the model and variables just because they may look a bit more favourable, but find the model that most suits your business and marketing activities.

The second thing to do, is to be committed to measurement - this isn’t going to work if you only track every other campaign, or don’t get round to recording your findings consistently.   If you want to track and report effectively on ROI, then you must do so for every campaign.

Next, decide which format you're going to track your data in. A spreadsheet may be the most suitable and the most appropriate to start with and can be expanded to build the data into graphs for any presentations that you may need to give.

When building your spreadsheet, start simple. Perhaps one sheet per campaign.  Let’s imagine you’ve launched a new product, so you name your marketing campaign ‘New Product Launch’ and you’re going to use Facebook Ads, LinkedIn Ads, Google Ads as well as a magazine ad in order to promote and sell your product.

So, you’d set up a new row in the sheet that contains the medium of each activity with columns for the amount spent, the number of sales and revenue generated from each channel, which would then give you enough data to calculate the ROI.

You could then expand this further, for example, in Google AdWords, this could be broken down so that you calculate the return from each adgroup, or even keyword. For your magazine ad, you may have the same ad running in different publications, or if you run it over a period of time, you may want to track the ROI of the ad in different positions, for example the front or back page.

Be careful not to jump to conclusions and make hasty decisions, I’ve seen people turn off their whole Google AdWords account because they perceived it to have a poor ROI. Where on further examination, the Pareto law applied and 20% of the account was producing 80% of their revenue generated from this channel. The correct action here would have been not to turn off the full account, but only the adgroups and/or keywords within the account that were not producing the results. If they had done this, the ROI would have been very impressive.

Also, make sure that you have sufficient data to make an informed decision. Any campaign must be given enough time to get a statistically significant result, which means that if the campaign continues, the likelihood is that the result will remain the same of very similar.

Then set the timings that you’re going to do the analysis for. Are you going to break this down weekly or monthly? Are you going to update your spreadsheet everyday, or just each fortnight? Again, no right or wrongs, just set your plan and stick to it.

What Tools Should you use to Track Your Marketing ROI

There are a huge amount of tools available nowadays to track your marketing ROI, as mentioned above, a simple spreadsheet would be an ideal start, but this is for recording and tracking the data. It’s likely that you’ll need some other tools as well in order to actually obtain the data in the first place.

A quick Google search on what tools to use will give you a plethora of software packages.  But to start with keep it really simple. So where do you gather that data?

First, a must, in my opinion, is Google Analytics - this is one of the, if not the best, free analytics packages that you can get and whilst it focuses on your website or mobile app, you can actually import other data into the software so that you can compare and measure.  Ensure that you are adding in UTM parameters when you are posting links in your ads, emails or social media, so that the correct data is being recorded - this article explains how to do that.

If you don’t already know how to use AnaIytics, then I’d suggest that it would be time well spent learning some basics. The amount of data that it contains is huge and can really help you with getting an understanding of what’s happening on your website.

One drawback of Analytics is that it’s anonymised data, therefore whilst you’ll get some great information about what a user is doing on your website and what traffic is converting, if your business relies upon lead generation and offline sales, then the data will often end once the lead is generated.

So combined with Google Analytics, I’d recommend getting a CRM system - When we talk about a CRM system, we really mean a next generation system that has the capability to collate and analyse both sales and marketing data. Remember the formula above for how to calculate your ROI, this means that you need to be able to attribute which sales came from which channel, so you need the visibility to track from when the lead was generated right the way through to the actual sales.

As you’re probably aware, our CRM/Marketing platform of choice is HubSpot - The CRM is actually free of charge and if you don’t have one you’re currently using, you could do a lot worse than to get hold of a HubSpot portal for yourself. If you’d like a demo to see the CRM capabilities, you can request one here.

So, in summary, now that you’ve read this article, you should understand the importance of measuring and tracking your ROI and where to start: Take the first step and commit to tracking. Define the metrics you’re going to use and put in place the procedures.