What is Marketing ROI and How Can You Improve It?

Marketing return on investment (ROI) is a crucial metric to understand your marketing performance. This guide will cover what it is, how to calculate it, what to consider, and how to improve your ROI if it's not performing as you’d hoped. 

Put simply, ROI measures the return generated from marketing activities relative to the amount of money spent. Calculating and understanding the ROI from all of your different marketing efforts can give you a great picture of how you’re performing — and help make sure you’re getting the best bang for your buck. 

What is marketing ROI?

Marketing ROI is the profit or loss generated by different marketing activities. It is a critical component of understanding performance, and can help support profitability for your organization. It can enable you to make decisions about which campaigns to invest in and which to turn off, and support you as you make the case for budget for activities that really move the needle. 

A high ROI indicates that a marketing campaign is generating a significant return compared to its cost, while a low or negative ROI suggests that it may be time to go back to the drawing board. 

By calculating and analyzing your ROI, your team can more accurately allocate budget, measure performance, optimize strategy, and communicate its performance and needs with stakeholders. 

How to calculate marketing ROI

You can calculate marketing ROI with a straightforward formula:

_{Marketing ROI = Profit from marketing / marketing costs}

So if your LinkedIn ad campaign cost $1,000 and it generated $2,500 in revenue on your website, your ROI would be calculated as: 

_{Marketing ROI = 2,500 / 1,000}

_{Marketing ROI = 2.5}

Some people prefer to express marketing ROI as a percentage. The formula would be the same except you would multiply the output by 100 and your marketing ROI would equal 250%. 

A good marketing ROI varies depending on the industry, product, and type of campaign. You should work with your team to set a benchmark for ROI over time and try to improve it as you progress. For reference, a marketing ROI of 5:1 (meaning you earn $5 for every $1 you spend) is considered a solid rule of thumb. 

What to consider when calculating ROI

It’s important to note that ROI changes depending on your time frame. Perhaps your LinkedIn ad generated $2,500 in its first day, but on a two-week timeframe it generated closer to $7,500. Your 14-day ROI would then be 7.5x your initial spend — that’s great!

ROI can also vary depending on how you define marketing costs. You should include direct spend in the denominator, but you can also include things like software and tool costs, personnel salaries, and more. This could be helpful if you are calculating ROI not on a campaign level but on a macro level, across all your campaigns for a given time period. 

For example, If you wanted to know the ROI of everything you did last quarter or last year, you may decide that including salaries and tools will give you the most accurate picture. 

Finally, attribution can be tricky with ROI. How do you know if someone clicked on your LinkedIn ad after they saw your Google ad first? How do you know which campaign to attribute marketing revenue to? 

To complicate the picture, different platforms may take sole ownership of conversions when, in reality, a confluence of factors, impressions, and touches ultimately leads to a purchase. Tools like multi-touch attribution (MTA) can help with attribution questions like this. 

When calculating your marketing ROI, it’s important to keep in mind timeframe, attribution issues, and any relevant marketing costs to get the clearest picture of performance. 

How to improve your marketing ROI

If your marketing ROI isn’t where you want it to be, there are a number of interventions that can help you get back on track. 

1. First, start by setting clear objectives. Your marketing ROI may be below the goal ratio of 5:1, but perhaps it is standard for your industry, product, or channel. Get a holistic picture of performance and set objectives based on your historicals — not numbers you read online. Use your current ROI to set a reasonable and attainable goal for the near future. 

2. Consider using advanced analytics and marketing intelligence tools to track and analyze campaign performance so your ROI isn’t skewed by platform analytics or incomplete attribution data. 

3. Focus on high-ROI channels — identify the channels that consistently deliver high ROI for your marketing efforts and allocate more budget to those channels. 

4. Test and optimize your lower-performing channels to see if you can improve your ROI through small, consistent, and creative iterations. 

5. Try to improve your customer targeting and refine your target audience. Effective customer targeting reduces wasted spend and increases the likelihood that leads will convert to customers as a result of your marketing efforts. Strong data and marketing intelligence platforms can help you refine your targeting. 

6. Optimize your conversion paths. Leads are typically taken to a page when they click on your ads, so ensure that page is optimized for conversions. A seamless user experience and clear call-to-action (CTA) can significantly improve the success of your marketing campaigns — and your ROI. 

How to think about ROI

Marketing ROI is a vital metric for any strong marketing team. It enables you to fully understand the impact of each marketing dollar and make informed decisions about spend. Use the definitions, formulas, considerations, and strategies for ROI improvement in this guide to help you get a firm grasp on ROI concepts so you can use them to your advantage and improve your overall marketing effectiveness. 

In a rapidly-evolving marketing landscape, staying focused on the efficiency and success of your investments is key to maximizing returns and improving your performance.