‘Return on investment’ – It is the magic phrase when it comes to any service you have invested in to move your business forward. You want to make sure that your money and resources are being invested in something that is delivering more than what you have put in. That is what ROI is all about. However, measuring ROI can be a lot easier said than done. With that said, in this blog post, we are going to take a look at ROI in marketing and some of the different ways that this can be displayed.
Calculating customer lifetime value
One of the most effective ways of displaying ROI in marketing is to look at the customer lifetime value at your business. This is one of the most critical metrics for any business. CLTV will tell you how much revenue you can expect one customer to generate throughout a business relationship. You can then, of course, compare this with the cost of marketing to a customer, and then you can see the margin in terms of ROI.
But, how do you calculate customer lifetime value? You will need to calculate the average purchase value first. You can then multiply this figure with your typical purchase frequency rate. This is going to give you the customer value figure. Once the average customer lifespan has been calculated, this can then be multiplied by the customer value to determine the customer lifetime value. Or, you can use our simple customer lifetime value calculator.
How much it costs to get a lead and sale
Aside from the customer lifetime value, you need to figure out how much it costs you to get a lead and sale. After all, you not only need to think about the money you are spending on bringing people to your website, but you also need to consider the costs when it comes to moving people along the customer buying journey until they ultimately make a purchase. Only once you have factored in all of these costs will you be able to get an accurate figure that you can compare against the customer lifetime value to figure out a realistic ROI figure.
Taking into consideration extraneous variables
Your ROI can be drastically impacted by extraneous variables. This is especially true if you are not aware of them. Variables include changes in your industry and economic trends and new lead channels you’ve turned on. Identifying these variables will make your ROI calculations much more accurate.
We also see it’s common for a company to run something like a webinar and get 500 leads. Well, that’s great, but an influx of 500 leads that not typical with your other months is going to cause the numbers to fluctuate drastically. It’s best to have a core set of either lead sources or a part of the funnel you measure, like valid marketing leads, since many of the 500 webinars leads will not be valid leads.
So there you have it: hopefully, you now have a better understanding regarding ROI in marketing. If the information that has been provided has led you to determine that you’re not getting the right level of return out of your marketing campaign, it is time to make some changes.