Calculating ROIWhat is the best way for calculating ROI for marketing?
This question comes up a lot in discussions about marketing ROI and effectiveness. Is there one best way for marketers to calculate ROI?
The basic challenge in calculating ROI for marketing
Unfortunately, there is only one way for calculating ROI. The formula is found in many of the other FAQs above but is generally Returns less Investment divided by the Investment. The result is multiplied by 100%.
This doesn’t really change. The real question behind this question is not the formula, it is the determination and calculation of the returns.
How can marketers determine the exact incremental returns, in terms of incremental sales and profits directly attributable to a specific marketing activity? This is the difficult question. Sometimes it is difficult to determine the actual investment being made, but in most cases this pales in comparison with the challenges of determining and measuring the directly attributable returns due to a specific marketing investment.
Complex consumer marketing challenges of calculating ROI
In a complex marketing environment, such as in consumer marketing campaigns, where there are many different media activities going on at the same time, the impact and contribution from each media channel needs to be deconstructed in order to calculate the returns. There are a number of methods to do this, but one popular method is using marketing mix modeling and more recently agent-based modeling and simulation.
Long lead time B2B selling challenges of calculating ROI
In small and mid-sized businesses selling in a B2B environment often have many challenges calculating ROI for marketing. Typically marketing generates leads of a certain value. These are then converted at some conversion rate. Because of this, the calculation method for calculating ROI is much more difficult. Generally, most B2B marketers use a simple last touch attribution method to determine the returns. Quite often, the success factor isn’t necessarily sales but could be leads and lead quality.
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