“You’ve got to spend money to make money” is an adage so old and ubiquitous it’s impossible to properly attribute it to any one person. Indeed, a variation on the expression can be found in the work of ancient Roman playwright Titus Maccius Plautus, who lived well over 2,000 years ago.
The adage keeps coming back around because in most cases, it’s accurate, especially in marketing. To achieve great revenue, marketers have to make smart investments in effective marketing campaigns. And the way to measure the success of marketing initiatives is to track your return on investment, or ROI.
What is Marketing ROI?
ROI essentially means how much money your marketing compelled customers to spend. It’s the measure not just of the dollars at work, but of the work behind the dollars. Did you place ads in the right spots online? Did you study your customer demographics well enough for proper audience segmentation? Did you stick to planned timelines?
The profitability of your marketing campaign depends on savvy implementation, not just dollars spent. A great marketing campaign that costs just a few thousand dollars could see tens of thousands of dollars in sales generated, while a huge spend on the wrong types of advertising could see a net loss in revenues, which is why advertisers should leverage strategies and tools which enable efficient marketing budget allocations.
Why Is ROI Important?
A doctor wouldn’t keep trying the same treatment if their patients kept getting sicker, and likewise, marketers shouldn’t keep trying the same advertising and outreach initiatives if profits keep dropping. Marketers can tell what’s working and what’s not by tracking the numbers.
“Marketing ROI measures how much you gained (or lost) relative to what you spent on marketing,” explains Jonathan Delamater of Course Unlocked. “Ensuring revenue is accurately attributed to the right marketing campaign is critical for measuring ROI, which is why proper attribution is such a big deal. Obviously, the higher the ROI multiplier a marketing campaign has, the better.”
“That said, measuring a campaign’s ROI is just the tip of the iceberg,” Delamater adds. “It’s always smart to think about your overall marketing mix when it comes to ROI. Especially for seasonal businesses, some marketing channels might perform better than others at different times of the year. That way, no matter what time of year it is, or if Google Ads pricing suddenly spikes overnight, you have backup campaigns running and don’t get stuck scrambling.”
Simply put, tracking your ROI lets you know if you’re spending your money effectively on advertising, outreach, and all your other marketing initiatives.
How to Calculate Marketing ROI
“There’s no single, universally approved, and accurate way to measure marketing ROI with 100% precision,” warns Joel Popoff, CEO of Axwell Wallet. “Rather than trying to nail attribution and get perfect results from a naturally imperfect system, you’re better off picking a few key metrics that align with your business goals and consistently monitoring how those metrics shift over time.”
Once you’ve carefully considered which of these key metrics matter most to your business, there’s one simple formula to follow for tracking and calculating their success.
The ROI Calculation Formula
To calculate your marketing return on investment, you subtract your marketing costs from your revenue from the same period, then divide that number by the marketing costs.
For a super straightforward example, if you spent $100 on a campaign that generated $1,000 in revenue, you subtract 100 (your spend) from 1,000 (your revenue), giving you 900 (what you made after spend). You then divide that 900 by 100 (your spend).
1,000 – 100 = 900
900 ÷ 100 = 9
That’s a 90% ROI, or a 9:1 ROI.
Now, let’s try for a more “real world” (and decidedly messier!) example. Say a company spends $10,000 on an ad campaign, and can later determine that the initiative led to $28,550 in revenue. Let’s use our model:
28,550 – 10,000 = 18,550
18,550 ÷ 10,000 = 1.855
That’s an 18.5% return on investment, which means a profit was made, although not a great one. In terms of gauging these results, the general rule of thumb is that a 5:1 ROI is a success in marketing.
Techniques To Boost Your Online Marketing ROI
To boost your online marketing ROI, you’ll want to leverage data analytics that will help you customize and optimize campaigns. You should also create high-quality content people will actually enjoy seeing, utilize A/B testing so you know what’s working and what’s not, and closely monitor performance metrics to understand where you need improvement to maximize those returns.
Use Performance Marketing
Performance marketing is an advanced approach to online marketing and advertising programs, wherein you only pay when a specific action occurs (e.g., a generated lead, a sale, a click, etc.) With AI-assisted performance marketing, creative advertising material is generated or adapted, then carefully placed where it will be maximally impactful online. This can include placement in sidebar ads, below articles, on mobile, and so much more. Because AI is always crunching the numbers, performance marketing gets more and more effective over time.
Unlock measurable outcomes by scaling beyond Search and Social with realize:
Hone the SEO
Copy that reads organically while also sharing a CTA is always better than bland copy, awkwardly keyword-stuffed copy, or copy without any actionable component. Great SEO on your site and in your ads will improve your website’s search engine ranking and attract organic traffic.
Spend the Time on Retargeting
Re-engage website visitors who have shown interest but haven’t yet converted. This can be with an email, social media reachout, or even a text if you have their contact info. The fact is that they showed an interest once, so they may well be ready to convert if they’re gently nudged again.
Segment Your Audience
Audience segmentation is the process of dividing a larger customer base into smaller, more manageable groups based on shared characteristics, such as demographics, behaviors, interests, or economics. This allows for targeted messaging and communication strategies tailored to each specific segment. It can make the way you spend your money much more effective, though granted, it does require more work upfront to differentiate marketing campaigns.
How to See if Your Marketing Investments Are Paying Off
“From my experience, the key to maximizing ROI is aligning your strategy with accurate, data-driven insights,” says Robbert Bink, founder of Crypto Recovers. “For example, when running digital ad campaigns, focusing on metrics like customer lifetime value (CLV) and cost per acquisition (CPA) ensures that you’re generating sustainable growth rather than short-term wins.”
In the simplest framing, you can track your marketing investments by calculating your average revenues during a given portion of the year, then track your revenues during that same period in a different year during which you had initiated new marketing campaigns. Calculate the spend vs. the profits and you have your information.
Don’t get complacent when your campaign is working, though, warns Delamater. “While I agree it’s most effective to ‘throw good money after good money,’ putting more ad dollars where they work best, you never want to put all your marketing dollars in one basket. It’s smarter to spend more where you make more, but always keep hedges in place with other campaigns as long as they make financial sense. As long as your ROI is positive, they’re worth keeping in the mix.”
Don’t forget to be patient, too, says Dustin Siggins, founder of Proven Media Solutions. “The best marketing strategies are built on looking forward six to 12 months with a significant investment of resources. That’s because it usually takes many weeks for the message to reach target audiences and to begin separating your narrative from the pack. You may have to modify the message or the platforms along the way, as well. In saturated markets, small money doesn’t go far because the competition is spending more on the same strategy, and audiences are already overwhelmed by so many messages.”
What Are the Challenges With Marketing ROI?
Calculating your ROI can be like trying to build a train while it’s already running down the tracks. You can’t just pause customer activity — such as their awareness and engagement with a brand and their actual spending — so knowing which time periods to study can be a challenge.
It can also be hard to quantify different types of successes or shortcomings. “Conversion or revenue generation is important, but some marketing tactics are not just measured by sales success alone,” says Ryan Anderson, president of Markiserv. “Conversion can also mean form sign-ups, increasing the lead pipeline for sales, building awareness, getting engagement, website or page visits, email sign-ups — they can all equate to ROI to a marketer, depending on the desired result.”
Then, of course, there’s always the chance of encountering false negatives and false positives. A spike in perceived ROI may actually have been caused by enhanced product category awareness based on something totally separate from your marketing work, such as an unexpected celebrity endorsement or mere association. So, too, might factors beyond your control drive sales down for a while — an outbreak of avian flu may drive up egg prices and drive down the sales of ingredients for baked goods just when you were marketing a new cookie batter, to give an example.
What Is Considered a Good Marketing ROI?
As noted, a 5:1 ratio is considered a good ROI in marketing. Anything higher than that is a true success for your team.
What that means is that for every one dollar you spend on advertising initiatives, your company is generating five dollars in revenues. Or for every $10,000 you spend, you raise $50,000.
It’s possible to have an ROI that’s greater than 100% of a return, though that’s rare. Imagine a world in which your spend of a dollar in marketing led to a return of $12 or $15 in profits. Then imagine that one dollar being thousands. A rarity, to be sure, but that’s the goal.
Key Takeaways
“ROI in marketing is the return on investment from your marketing spend,” summarizes Forrest Webber, an analyst with Fusion Fabricators. “This can include ad spending on Google ads, Bing ads, billboards, and so on. This can also include money spent on backlinks or PR opportunities.” And so much more, of course — marketing can take nearly countless different forms, but all of them have one thing in common: A cost.
A marketing ROI of 5:1 is a good benchmark to aim for, i.e., when each $1 spent on marketing yields $5 in revenue. Basic ROI is calculated by subtracting the cost of the marketing spend from the revenue generated, then dividing that number by the spend.
Remember, calculating and then acting on ROI data can require a long view and patience. “Measuring ROI isn’t solely about a campaign’s success, it’s also about enhancing future campaigns,” says Joe Giranda, director of sales and marketing at CFR Classic. “In measuring marketing ROI, the processes that are profitable and those that are not are clearly apparent. It increases the investment in well-performing channels while minimizing expenditure on underperforming ones.”
Finally, not all returns are purely financial. “One of the mistakes people make in calculating the ROI in marketing is not taking micro-conversions into account,” points out Farhan Siraj, CEO of OSHA Outreach Courses. “Actions such as signing up for newsletters, creating an account on a website, or downloading a whitepaper without buying anything are often referred to as micro-conversions.”
Frequently Asked Questions (FAQs)
What does an ROI of 20% mean?
A 20% return on investment means that you’re earning 20 cents for every dollar spent, or, to put it more tangibly, you are earning $1.20 for each dollar spent. The $1 is you breaking even, the 20 cents are profit.
To scale things up, if you spent $10,000 on a marketing campaign, a 20% ROI would mean you’d made $2,000 profit after all costs were accounted for (that is, you’d see $12,000 in revenue before factoring in the money spent).
And no, a 20% ROI is not good! If this is the result you’re seeing, it means it’s time to shift your strategies dramatically. You should aim for an ROI of at least 5:1.
How do you determine your LTV?
LTV stands for loan-to-value, or loan-to-value ratio. It is a comparison of the amount of money that must be borrowed relative to the actual value of an asset being purchased. LTV is calculated by dividing the amount borrowed by the established value of the asset. For example, if a borrower takes out a $150,000 loan to purchase a house worth $200,000, the LTV ratio is 75% ($150,000 / $200,000 = 0.75).
What marketing has the highest ROI?
Email marketing is often considered to have the highest ROI because the costs are so low. Once you have collected an email address, it costs essentially nothing to reach it, other than the wages paid to workers crafting email blasts. The problem is that you have little to no way of knowing if a given email address has fallen into disuse or if the person has blocked your company or opted out of emails.
Pay-per-click marketing is also highly effective when used well because it makes tracking data so easy. It can be expensive, but also profitable. Other high-value marketing initiatives include working with established influencers, targeted ads on media like podcasts or videos, and careful SEO and backlink building.
