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What is ROI?

What is ROI?

Every business that hits the market is driven by people who want it to be the most successful in the industry. Therefore, the marketing evolution tends to become more and more useful when it comes to a company's success. However, since it is not an exact science, many marketers leave some essential components of the campaign out. ROI is one of the factors that can improve the marketing efforts and help you get leads if you use it correctly.

What is ROI in marketing?

What is ROI? The abbreviation stands for the return on investment. In marketing, you need to pay a lot of thought and consideration to the fact of whether your investment will bring the desired profit or not. The simplest definition of the notion would be to state that you have to compare your initial investment with potential revenue through an ROI formula.

At times, ROI marketing involves the mental wealth – the investment you put into staff training – but it's mostly tangible wealth. Since there are various marketing strategies on offer these days, calculating ROI will help you figure out which way is the most profitable. For instance, you can calculate potential profit from content marketing, email marketing or search engine marketing. The strategy that proves to bring the highest total revenue is to be pursued.

How to calculate ROI?

While some companies are highly focused on B2B lead generation, there are other vital components that make the journey twice as successful. An effective ROI formula includes several elements. However, the practical place to start is to define your KPI. KPI stands for a key performance indicator. To put it simply, you need to figure out which metrics to use to understand if the campaign in mind will be a success.

There are several KPIs worth concentrating your attention on:

  • Cost per lead – every B2B sales lead requires a certain amount of investment to be secured.
  • CAC (Customer acquisition cost) – the sum you need to spend to acquire new sales clients.
  • CLV (Customer lifetime value) – the total revenue you can count on receiving from a user over the time they stick with you.
  • Marketing spend – the cost you implement into various online or offline marketing efforts to get leads.
  • Brand reputation – the better your business's reputation, the higher the customers’ chances of using it over the rest.
  • Once all the factors are determined, you can add them to the general formula to calculate your marketing ROI.

Simple ROI formula

In case you wonder how to calculate ROI in the simplest way possible, you need to stick to the basic formula, which is the following:

(Sales Growth - Marketing Cost) / Marketing Cost = ROI.

The impact such a simple ROI formula has on the revenue is excellent. However, you may need an in-depth explanation to understand it better. When you know your sales growth, you need to subtract the cost spent on marketing efforts. The result you get should be divided by the same marketing cost used in the previous operation.

For instance, the sales growth is $1,500, while the campaign costs you around $150, then the marketing ROI is 900%. It doesn't take a genius to figure out that the potential profit is quite impressive. However, we are talking round numbers here, and the reality is rarely that simple, yet you get the idea.

 (($1500-$150) / $150) = 900%.

Campaign attributable return on investment

Various online calculators can assist you in figuring the simple ROI revenue. However, when it comes to counting the campaign attributable ROI, things get a little more complex. You need to have a practical comparison at hand to refer to so that you can come up with real profits to expect from a campaign. Monthly or yearly comparisons will help you understand the impact better.

Following the sales trends, you can improve the calculations. Let's say you notice an average organic growth in sales of around 5% monthly. This means that your ROI will deduct this 5% from the general growth. The approximate calculations will look the following way:

(Sales Growth - Average Organic Sales Growth - Marketing Cost) / Marketing Cost = ROI

Why should you measure your marketing ROI?

With an effective B2B sales lead generation and successful sales funnel intact, you may still doubt the positive impact that marketing evolution can have on your business. There are undeniable proofs that well-calculated ROI can improve the total revenue. These are the following:

  1.   Definition of working strategies.
  2.   Determination of profit-oriented marketing branches.
  3.   Pointing out your place in the competition.
  4.   Business success depends upon strategies that positively impact the process. In case there are a few paths your team follows unless you calculate the return on investment from each, you'll be unable to define the one that generates the most revenue.
  5.   Since you know which strategies are profit-oriented, you can center the primary investment on those and improve both – the B2B sales lead generation and general business revenue.
  6.   The better your ROI calculations, the more profoundly you understand the competition and how to get ahead of it. Whether it is an online or offline line of work, the effect will be the same. The more customers you have, the more revenue you generate.

Modern marketing evolution proves that you can get leads and turn them into customers with more than practical outreach. Therefore, the effective impact of ROI solutions in the industry shouldn't be underestimated.

Now, when you know the basics, you can enhance your online or offline business strategy in a matter of months and gain the profit you couldn't have dreamed of!

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