First, we need to agree on what the term “return on investment” means. There are several complex financial formulas. But the best one for practical use is the one that divides the measurable return, such as sales revenue, profit, or gain, by the amount of investment, such as marketing costs. Obviously, this is not just a ratio.
But there is a catch here. Unless we include the cost of goods sold (COGS), we should not say that we made $900 in profit on a $100 investment in marketing, which is assumed to be before expenses. Instead, we should subtract the cost of goods sold from the profit (in which case it would be, say, $500) and then the profit from our program will be close to the gross profit. So, after we account for the cost of goods, our profit is $400, divided by our marketing investment, we get a return on investment of 400 percent.
Subtracting the cost of your merchandise from your gross profit is an especially important step if you rely more heavily on one product in your marketing program than another, because different products (especially those with different price points) can result in different gross profit margins. We’re assuming that marketing costs are not included when calculating the cost of merchandise. If they are, simply add them back in so you don’t count them twice.
What is ROI in Marketing?
This is all well and good, but it raises a new problem: Can we attribute revenue and sales to marketing even if we have adjusted everything to subtract recent mobile phone number data marketing costs and product costs? In most companies, the answer is no.
One reason is that in most companies, the sales department works to close sales. The marketing department works to drive demand, spread the word, or generate leads. So if you want to allocate resources optimally, you have to allocate money based on how much sales effort each department puts into it.
Another reason to separate funding is that not all marketing programs are created equal. In sales terms, a click is not the same as an appointment to make a decision. Downloading a white paper is not the same as receiving a Business Request Return Card (BRC). To properly calculate your marketing ROI , you must determine a discrete and comparable value for each outcome of your marketing program, whether it’s a click, impression, email address left, website visit, referral, contact, or face-to-face interaction.
Lead scoring
There are two ways to determine the value of your marketing program results. One is to simply calculate the cost per lead. For example, if you have a website and you unlocking the power of anchor text for long-tail keywords have a certain number of visitors, to calculate the cost per visitor, you would divide the cost of the website by the number of people who visited it. If you are sending out emails that include a return request card, then to calculate the cost per lead, you would divide the amount spent on the email by the number of return requests you received.
The problem with this approach is that you cannot compare the number of website visitors to the return requests you received. Sure, you could say you spent $1 per visit or $10 per return request. But is it really that easy to compare? If it were that simple, you would only invest in the website, because the cost per lead is much lower than with an email. But we know that a website visit is not the same as sending a return request card. Firstly, you don’t know anything about the site visitor except his IP, and this is very difficult to use for sales. Secondly, even if we knew something else about him, the closing rates in these two cases would be different.
Herein lies the main problem. Although each online marketing result can be called a lead, not all leads are created equal. In fact, not only the differences between them, but also the differences in their value will affect the calculation of marketing ROI.
So you’ll have to calculate the value of each lead to the sales process, not just their cost.
Calculating the value of a lead
Every company has a unique sales cycle, which is an investment and a series of specific activities that lead from the first announcements of availability ge lists to the final upsells. A business-to-business company’s cycle typically begins with the marketing team promoting a new product, generating demand, and generating leads. At some point, prospects become clear and that information is passed on to sales, where they try to close deals.
For example, marketing sends out a series of emails that introduce specific opportunities that sales is already pursuing. For example, they might post a white paper on the company’s website, and when someone requests a download, marketing records the contact information and sends it to sales.
If each of these leads has the same qualifications and close rates, there will be no problem. But that’s usually not the case. So you need to factor. In the cost of conversion at the initial stage (or during another common event) to properly calculate ROAS . This cost (the lower the better) is the true measure of the value of any marketing program.
Depending on your company’s cycle. It may be easier to calculate conversion cost as. The cost of converting a lead into an actual appointment or foot traffic. Which is generally recommended. Sometimes it’s easier to go all the way. The method will work as long as you stick to one approach.
To be completely honest, scoring leads, for example. By trying to measure attributes of leads beyond conversion cost (or closing costs), is the wrong approach. The only way to measure ROAS in marketing is to separate leads by conversion type when scoring them.