Despite becoming increasingly digital and data-driven, marketers still struggle more than their counterparts in other corporate functions to communicate the business impact of their work.
Measuring marketing ROI is important to determine the level of success in a campaign or plan. Performance metrics like ROI should be regularly tracked either on a monthly or quarterly basis to track whether goals are being met.
We’ve discussed the importance of focusing on marketing metrics that matter - and ROI is perhaps one of the most important marketing metrics. In this article, we’ll review the MROI formula, while taking a closer look at the impact of timing on marketing ROI.
Article Contents:
Here are the sections of this article:
- What is ROI in marketing?
- How is marketing calculated?
- How timeframes affect measuring marketing ROI
- What is considered a good marketing ROI?
- A checklist for measuring MROI
What is ROI in Marketing?
The definition of marketing return on investment (MROI) is exactly how it sounds: the attribution of profit and revenue growth to marketing plans and campaigns.
Why is ROI so Important in Marketing?
Simply put, marketing ROI is the most effective way to measure the effectiveness of marketing efforts. Done right, it enables marketers to consistently measure and compare the performance of diverse campaigns executed across multiple channels.
How is Marketing ROI Calculated?
Now that you understand what marketing ROI means, here is the formula to calculate marketing return on investment:
MROI Formula
As a refresher, the formula for the marketing ROI equation: MROI = (Return - Investment)/Investment
Return
Our recommendation is to use the marketing ROI formula to measure return in terms of contribution margin. If you can’t, use gross margin, or - slightly worse - revenue. Here’s why:
- Imagine two companies, with each spending $20,000 on a campaign that generates $100,000 of revenue. If we measure ROI at the revenue level, the ROI’s look identical: (100-20)/20 = 4.0
- If one company has a contribution margin of 60% on its product ($60,000 margin on the $100K return) and one has a contribution margin of 30% ($30,000 margin on the $100K return) it becomes clear that one company’s marketing ROI is four times better: (60-20)/20 = 2.0 vs (30-20)/20 = 0.5.
Investment
In regards to marketing ROI, investment means the complete campaign investment, which is easy to measure once the campaign is finished. While you’re executing the campaign, however, it’s useful to know which expenses to include, and how they will affect your results. Options are outlined in the following sections.
Which measures of investment make the most sense for you depends on the campaign type, your team culture, and the questions you’re trying to answer.
Know your target ROI
We strongly recommend calculating your target ROI. It’s a good practice to have a sense of your total campaign budget (you can use our marketing budget management tool) and the value of your total outcomes before the campaign begins. That way you can determine if you are set up for success.
When you consider your budget and the value of the campaign outcomes, if they don’t yield a compelling ROI, you should go back to the drawing board and take a different approach. What’s the point of doing a campaign that, if it succeeds, delivers a poor ROI?
How Timeframes Affect Marketing ROI Measurements
Though the formula remains the same, timeframes can affect the way we measure ROI. There are a few possible ways you can measure marketing ROI over timeframes:
- Snapshot - looks at ROI present point in time, recurring weekly, monthly, quarterly, etc
- Cumulative to date - considers all metrics and expenses up until the present point in time
- Cumulative with future expenses included - considers closed expenses and committed future expenses
Snapshot
Sometimes it is useful to calculate ROI for a specific time frame that is shorter than the entire campaign. This may make sense in the context of an evergreen digital campaign, where you want to track marketing ROI performance in a month-by-month timeframe.
This measure of ROI doesn’t communicate how the total campaign is doing, but it allows for easy month-by-month comparisons over relative performance, which is valuable for many.
The table below illustrates ROI independently each month. Leads have a mean contribution margin of $90 in this example:
Cumulative, Expenses to Date
Other times, you may want to track the cumulative ROI of a campaign.
If investments precede outcomes by a long timeframe, then you should plan on having a poor ROI, to begin with, but as the metrics start to pour in after the spending has stopped, the ROI trajectory will improve quickly.
Example 1: Evergreen Digital Campaign
An evergreen digital marketing campaign looks like this in a cumulative view:
Example 2: Product Launch
Cumulative ROI for a product launch can look wildly different.
In this example, there’s a small number of pre-orders in March, with the launch date at the end of April. There’s no spending in May, and the vast majority of the results occur in May, vaulting the ROI upwards.
Cumulative, Future Expenses Included
In all instances, it is worth knowing what your current, total campaign ROI is.
In other words, if you stopped the campaign today, with the marketing metrics that you have, 100% of your closed expenses, and committed future expenses, what would the ROI be? This may be useful for campaigns that have significant expenses locked in over future time periods.
This isn’t always the most intuitive point, but the notion of committed future expenses is critical to MROI calculations. If you stop a campaign early, and it has future expenses that you still have to pay, those must be included when measuring MROI using this method.
Example: TV Advertising Campaign
Imagine if you’ve made a significant media buy for a TV advertising campaign and then don’t launch. You still owe the money for the media buy and that has to be included in the campaign ROI calculation.
The marketing ROI calculated just including expenses incurred through the end of May:
Now imagine that as of February, there was an additional $20K of expenses contractually committed across June and July. The real MROI measured is updated as follows:
This is the most accurate representation of where things stand if the marketing campaign were to stop in May.
Your Checklist for Measuring MROI
Even with something as apparently simple as the MROI equation, there are numerous factors to consider for your marketing plan.
Here’s a marketing ROI measurement checklist to determine which makes the most sense for you (using more than one is okay):
Be Clear About What's Being Measured
Always be clear that measuring your return in revenue, gross margin, and contribution margin are all valid, but each will change the definition of what a good marketing ROI is.
Plot Expected Metric Milestones
Plot out your expected metric achievement in milestones. This helps you understand and communicate whether a marketing campaign is behind schedule, or whether the metrics are just coming in in the future.
Use MROI Snapshot Measurements
If you want to track monthly (or quarterly, or weekly) performance independently, then MROI snapshot measurements may be useful. Long-term, repetitive campaigns - particularly those with constant investment levels - lend themselves to this kind of measurement. But remember, this measure will not tell you the total campaign ROI.
Marketing ROI with Cumulative Return
MROI measured with the cumulative return but only to-date expenses may give you a good sense of how the campaign is going, and whether you are on track.
Be mindful that the ROI may drop if you end the campaign early, as you will have to factor in committed expenses in the future (for example, you may have a non-refundable contract related to the campaign that has not been invoiced yet - if you cancel the campaign, that contract still needs to be paid).
Keep Track of Cumulative Metrics
To analyze the truest MROI measure, keep a track of cumulative metrics and achievement and all committed expenses, including future commitments.
This won’t always give you the most encouraging snapshot view of ROI, but it is realistic, and if your milestones are planned correctly, you will know you are on the correct course to achieve the right outcome in the end.
Using Plannuh to Improve Marketing ROI
Learn more about Plannuh's marketing ROI tracking tool, and other features our marketing planning software offers marketers, CMOs, and marketing teams.
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Dan Faulkner is co-author of The Next CMO: a guide to operational marketing excellence, and the CTO of Plannuh, where he is responsible for the technical strategy and delivery of the world’s first AI-powered marketing management platform. Dan has 25 years of high-tech experience, spanning research and development, product management, strategy, and general management. He has deep international experience, having led businesses in Europe, Asia, North America, and South America, delivering complex AI solutions at scale to numerous industries. Dan holds a Bachelor’s degree in Linguistics, and Masters degrees in Speech & Language Processing, and Marketing. He has completed studies in Strategy Implementation at Wharton.