Return on investment (ROI) is the #1 measurement for ANY marketing you do.
When you track your return you are able to determine what is working; and what is not working.
One of the most asked questions I get is; what can I expect as my ROI?
First, here is how you calculate ROI (here is the formula)
(Gain from Investment – Cost of Investment)
Cost of the Investment
This means; if you made R100 000 in sales; and invested R10 000; your ROI will be
(R100 000 – R10 000) / R10 000 = 9
The number 9 in this case means for every R1 you put in; you got back R9.
There are a couple of important considerations here:
- Profitability: The above example use sales as a measure of ROI. The reason is sales is a common factor. It is one-line on your income statement. Profits can be manipulated.
- Some products and services have higher margins than others.
- Life-time value of a customer needs to be taken into consideration. It is not only the first sale; but the life-time of sales and referrals from a customer. Many businesses rank referrals as a key source of new business.
- There are leading and lagging indicators. Some measurements predict the future; others report on results. For instance lead satisfaction is a leading indicator of future sales. Sales is a lagging indicator.
So what is a good ROI?
From some research; a quick ROI is 5. This gives you a way to quickly determine to see if a campaign is working or not.
Here are some ROI examples:
- R200 sale. If you spend R100 to make a sale, the ROI is 1
(R200 – R100) / R100 = 1
- R500 sale. If you spend R100 to make a sale, the ROI is 4
(R500 – R100) / R100 = 4
- R1000 sale. If you spend R100 to make a sale, the ROI is 9
(R1000 – R100) / R100 = 9
Do you see the impact of having a good profit margin? Companies with higher margins will have a faster return on their marketing investment.
You do need to calculate your own ROI target for your campaigns. Bigger profit margins combined with higher value products and services in most cases will have a better ROI compared to lower value products and services.
What is counted as a cost?
Your marketing costs relate to the campaign. This includes;
- Agency cost
- Advertising spend
- Pay-per-click spend
- Content production
Systems and employees are not part of the cost. This is usually part of the operations in a business.
Finding your goal ROI will help you focus on getting the best return on your marketing campaigns.
Do you want your own lead generation campaign? Having marketing and sales systems gives you the edge. Marketing and sales processes ensures your business growth!
- The first goal of your marketing is getting leads. This takes the pressure off. If you MUST make this sale or face cash flow problems the desperation is carried on over. When you know there will be MORE leads soon you have a much more relaxed approach to every call and every prospect.
- You can also find out if the client is the right client. We have all had clients who were not a good fit. The more prospects you have the pickier you can be. A steady flow of leads is not just sales. It is also future business. A long term relationship. Ongoing business and referrals.
- Our approach is great for tangible goods and VERY specialized services. We have done very well finding sales leads for equipment, compressors, furnaces, first aid training, awnings, ducting, banners, bins, balustrades, decking, golf carts, signs, roofing, waterproofing, generators, uniforms, and a whole lot more.