Marketing is all about creating a journey for your audience. As a B2B tech company, your marketing content should engage buyers so they want to connect with your brand. Good marketing makes it easy and enjoyable for customers to buy and re-enter your funnel.
Ensuring your marketing campaigns are effective is critical. Businesses want to make a profit and the marketing team plays a key role in improving the bottom line.
That all sounds good, but how do you know if your digital marketing strategy is actually working? How do you verify whether your marketing activities are profitable?
One popular way is to measure and evaluate your marketing ROI.
What is Marketing ROI (MROI)?
Marketing return on investment (MROI) is a commonly used measure to determine if marketing activities are profitable. You are simply measuring how much was earned from marketing activities compared to how much was spent.
Why is MROI Important?
MROI is a simple metric that measures profitability. Marketing teams can use it to gauge how well an individual campaign performed or to evaluate the profitability of all marketing activities combined. Understanding your MROI can help you make marketing decisions that lead to better results.
How to Calculate Marketing ROI
A Simple ROI Calculation
To do a simple calculation, take sales growth and subtract the marketing costs, and divide that difference by the marketing costs. To make sure you show it as a percentage, multiply the final answer by 100.
((Sales Growth – Marketing Cost) / (Marketing Cost)) x 100 = Marketing ROI as %
Simple ROI Examples
Here is a simple example. Marketing Campaign A cost $1,000 to run and resulted in $1,300 in sales growth. The MROI for this campaign would be 30 percent:
Campaign A: (($1,300 – $1,000) / ($1,000)) x 100 = 30%
You can then take these results and compare them to other campaigns to see which one performed better.
If Campaign B cost $1,300 and produced $1,200 in sales, the MROI would be negative:
Campaign B: (($1,200 – $1,300) / ($1,300)) x 100 = -7.69%
With this information, you can easily determine Campaign A was more effective. This was obvious, since Campaign B cost more to run than it earned. It isn’t always that simple to see right away.
For example, if Campaign C brought in $1,500 in sales growth and cost $1,235, it isn’t as easy to compare to Campaign A without calculating the ROI:
Campaign C: (($1,500 – $1,235) / ($1,235)) x 100 = 21.46%
After calculating all 3 campaigns, you can see that Campaign A was the most profitable, followed by Campaign C. However, Campaign B lost money.
You can then further evaluate each campaign to determine what made it successful or not. Aim to replicate the successful campaigns and avoid repeat mistakes of the failed ones.
If you wanted to see the total effectiveness of all campaigns combined, you simply find total sales growth and total marketing costs and input them into the same formula.
Total Sales Growth: $1,300 + $1,200 + $1,500 = $4,000
Total Marketing Costs: $1,000 + $1,300 + $1,235 = $3,535
(($4,000 – $3,535) / ($3,535)) x 100 = 13.15%
Marketing ROI Calculation
The simple ROI formula isn’t specific to marketing. It can be used in many different ways and areas of business. The one challenge of using that formula with marketing is it assumes all sales growth is the result of marketing activities. This isn’t the case. To get a more accurate picture, you need a slightly more complex formula
((Sales Growth – Organic Sales Growth – Marketing Cost) / (Marketing Cost) x 100 = True Marketing ROI as a %
Admittedly, this formula is harder to use and finding true MROI is close to impossible. It requires you to know what your sales would be (organic sales growth) if you didn’t spend anything on marketing.
There are several other challenges as well, like the lag time between when a customer sees an ad and actually makes a purchase, and knowing which individual ads or campaigns actually contributed to a purchase.
So using the MROI formula above is ideal for greater accuracy, but harder to do in practice.
How Long Should it Take to See a Return from Marketing Activities?
While we get this question a lot from clients and prospects, the answer really is “it depends.” There are dozens of factors to consider with any campaign. The time it takes to see a return from paid ads is faster than SEO.
For some paid campaigns and PPC ads, you can see immediate results depending on your industry and whether you are a B2B or B2C company. Certain campaigns can see a return in a few days, if done properly. For SEO and other marketing campaigns, it can take 6-12 months of consistent effort before you begin seeing the results.
As mentioned in the previous section, finding true MROI is close to impossible. This challenge is amplified to greater difficulty when you are talking about measuring the overall brand equity. Factors like the age of a B2B technology company, its size and reputation, and whether it has had consistent brand marketing all play a significant role.
For these reasons, you can’t really know for certain how much your total marketing is impacting the bottom line. This is a challenge for some executives, and often causes disagreements between other departments. I can cause many to only see marketing as an expense. However, that’s a major pitfall, and is probably a topic for a different blog post entirely.
How long should it take to see a return? Short answer, it depends. Long answer, 6-12 months, but approximately 1-3 months for paid ads and other sponsored content.
The Pros and Cons of Analyzing MROI
Marketing ROI has several benefits. First, it offers a quick way to measure the success of different marketing campaigns. You can use ROI percentages to determine which campaigns should be repeated, and which should be refined or discontinued. It also can help you see the effectiveness of your overall marketing efforts over a given period of time.
Measuring ROI can also help you build a case for a greater marketing budget because it can show the value of your work in terms of profit. That can be a major help internally when cuts are being made or costs need to be eliminated. It gives you ammo to support yourself and your team.
Lastly, marketing ROI can help you know if you are doing things right. If most of your campaigns are showing a positive return, you know you are building awareness, fostering growth, and helping the right people see and respond to your message.
One of the most obvious drawbacks to using ROI is the challenges associated with accurately measuring it. The simple ROI formula works, but the MROI formula is harder to figure out and requires data that is sometimes very difficult to find.
Another negative is that marketing ROI can put too much focus on metrics that don’t really matter in the long-term. It can cause marketing teams to tweak areas that improve ROI, but hurt the overall brand. Remember, you always need to think long-term in marketing. Short term gains are fantastic, but you can’t forego good marketing practices.
Focus on Marketing Effectiveness over Returns
At the end of the day, tech companies want a profit. Marketing plays a critical role in improving profitability. If marketing is viewed only as an expense that needs to show immediate value, it simply won’t work.
The amount spent on marketing today helps you six months, or even years, into the future. When done correctly, marketing will strengthen your brand over time and will increase the total value of your company. However, if you only focus on the immediate profits, you can end up making mistakes that will cost you in the long run.
Measure your campaigns, but don’t try to analyze the ROI right away or for every single campaign. It will take time. Focus on creating content that is strong, effective, and resonates with your audience. If you do that well, then marketing will become an asset that delivers returns for years to come.
If your company needs help building your brand or increasing the effectiveness of its marketing efforts, contact us today! We love meeting new people and would be glad to listen and give you some pointers.