How to Calculate ROI

Best Practices on how to calculate ROI for marketing!

Best practices on how to calculate ROI for marketing fall into a couple of categories.  The ROI formula and the ROI Calculator are specified above but they only provide a general formula and calculator.

Calculating ROI for Marketing

Marketers must also consider the following when developing a culture of how to calculate ROI for marketing:

1) Continuous Improvement

Calculating ROI is a simple formula but has enormous implications for the marketing function.  The most important facet is that ROI is a process that can lead to significant improvements in marketing execution, but also to improvements in data gathering.  As the data gets better, the measurements get better, leading to a more accurate calculation of marketing ROI.

2) Plan with ROI in mind

When a marketing plan is put in place, marketers must plan how they foresee measuring their effectiveness and gauging that effectiveness with a clear ROI in place.  It means all costs and returns must be measured and incorporated.

3) Marketing ROI is imperfect, but it is better than not measuring

We generally recommend that marketers not only measure their ROI, but also estimate where their imperfections lie and what they can do to determine how inexact their ROI calculations are.  If they are within plus or minus 20%, what must be done to make them more accurate?

3a) Do all media channel ROI calculations have the same level of inaccuracy?

We’ve generally found that this is not the case.  Digital may be very exact, but billboards may be inexact.

3b) If the estimated inaccuracies are greater than 20% does this mean the ROI calculation isn’t usable?

These results become more directional, but that doesn’t mean that the significantly better marketing execution decisions can’t be made.  Usually, they can be made and can lead to significantly improved results.

4) Strategy v. Tactics

There are many definitions of strategy and tactics related to marketing. We see several levels of strategy, but really only one level of tactics.  Strategy takes into account all 4Ps, whereas Tactics are usually meant for a single media channel.  Strategy can also determine whether a brand should be launched or not.  It can also help to determine whether a product line or brand should be sold off, invested in or shut down. Tactics generally applies more to the specific actions taken within a media channel, but less about planning an entire campaign and or a series of campaigns running throughout the year. 

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