ROI Marketing Calculations
As a small business owner, tracking your marketing expenses and figured out where your efforts and budget can be best spent is vital to being not only profitable, but sustainable in the long run. Any company can have that one ‘reinvented the wheel’ idea that will basically sell itself, but a great company can capitalize on that opportunity by investing in a smart marketing plan.
ROI (Return On Investment) is a term that will get thrown around in just about every business conference room, every day of the week, by the sales and marketing teams for said business. If you’re not tracking your ROI on a routine basis, maybe you should start. In our small niche of the diesel performance industry knowing your ROI is just as important to running a successful business as it is to those massive Fortune 500 Companies. So how do you calculate your ROI? Well, it’s simple, in a very complex way.
In its most basic form, the ROI calculation is basically your business or product growth, minus your marketing cost, then divided by tour marketing cost.
(Sales Increase – Marketing Cost) / Marketing Cost = ROI
For example, your sales on a specific product have grown by $1000 in one month, you spent $100 on a marketing campaign for that product through the month, so your simple ROI is ($1000-$100) / $100. So, your ROI is 900%, which is an unheard of number in business, but it made our math easy for the example.
Unfortunately, though, this won’t tell the true story and there are dozens of factors that can play into these calculations and getting them as accurately as possible. We haven’t considered the average growth that given product was already experiencing before the marketing campaign started. And to be able to really understand your ROI, you’d need to be able to follow these numbers for months and create comparisons, at which you’d then start watching on a yearly basis.
Back to an example, you spend $1500 on a marketing campaign that has been seeing an average of 5% increase over the past few months before the marketing campaign kicked off. Your organic growth was 5%. One month into the campaign, your sales are $5000. So, 5% of that $5000 was organic based off your previous trend ($250).
(Sales Growth – Average Organic Growth – Marketing Cost) / Marketing Cost = ROI
($5000 – $250 – $1500) / $1500 = 216%
So, the ROI on that marketing campaign was 216%, again, an unrealistic number in just about any line of business, but these numbers are just figured for example. In the small business world, most consider a 5-12% ROI to be a good place to find be and should be enough to sustain a product or business, or at least the marketing plan you’ve put together. So maybe as you start going over your monthly books and look at your marketing budgets, these simple calculations can help evolve your business into something more and create a more optimistic future.