Measuring your marketing campaign’s return on investment (ROI) and how much it contributed to the sales and profit is the backbone of marketing. If you cannot do it, it’d get tough to satisfy stakeholders.
By Vikas Agrawal
In reality, it is one of the biggest challenges that marketers face. In a HubSpot survey, 40% of marketers said that proving ROI of their marketing activities is their biggest challenge.
And if you manage to calculate ROI of your marketing activities, you’re 1.6x more likely to receive higher marketing budget. Why?
Because if you can show your bosses the quantified impact of your marketing activities, it will make them feel good. This is what they want, right?
Meeting and managing stakeholder expectations isn’t easy, it is a reality. They need to see the output of every penny you invest in marketing. If you have no clue where to begin and how to calculate marketing ROI so you can satisfy stakeholders, stick with the following metrics to get started.
- Website traffic
Website traffic is the core metric that helps you see how much traffic a specific marketing activity has generated. For instance, if you’re running a brand awareness campaign, it’d get tough to determine the impact. This is where website traffic can solve the issue.
Increase in direct traffic will help you measure the effectiveness of your brand awareness campaign.
You can use Google Analytics to see how specific pages or landing pages are performing. Website traffic alone won’t be a useful metric but coupled with other metrics, it can provide you with meaningful data. For instance, you can check unique visitors, on-site engagement, page views, bounce rate, etc.
Needless to say, website traffic should be your top priority whenever dealing with marketing ROI.
If your marketing activity increased website traffic, that’s great.
But if all that traffic didn’t convert, it is potentially useless. In other words, the lead quantity and quality is a major metric that helps you in proving marketing ROI.
Measuring and tracking an increase in the number of leads is easy. Your autoresponder will tell the complete story. Measuring lead quality is a bit of challenging, and this is what stakeholders will be more interested in.
You can set up goals in Google Analytics that will help you measure lead quality with the help of Funnel Visualization.
Lead quantity and quality show you whether your marketing campaign is able to generate leads that convert and purchase. Lead quality is way crucial than the quantity of leads because you’d be more interested in leads that convert instead of leads that don’t convert at all.
- Cost per lead
If you’re running an email marketing campaign or a paid traffic campaign like PPC, you’d need to calculate the cost per lead (CPL) to measure your campaign’s ROI. It is also known as cost per conversion.
For any campaign where your target is to generate leads, you should measure cost per lead to determine the profitability of the campaign. Here is a formula to calculate CPL:
Cost per lead = Total cost of campaign / No. of leads generated
If the cost per lead is high as compared to the cost of your product, your campaign underperformed. For instance, if you’re selling an app that’s priced at $150 and your cost per lead comes out to be $200, your campaign didn’t work.
- Customer acquisition cost
This is one of the most used marketing ROI metrics. Customer acquisition cost (CAC) measures the cost of acquiring a new customer instead of a lead. It is the total marketing investment required to bring one customer onboard.
It is calculated by dividing all the costs spent on acquiring new customers by the number of customers acquired in the period when the money was spent.
It is a more comprehensive and representative metric as compared to the cost per lead as it clearly shows the cost to acquire a new customer who will actually pay your business.
- The ratio of customer lifetime value
CAC itself is a powerful metric but it won’t be of much use if you don’t know the lifetime value of a customer. Customer lifetime value (LTV) is a prediction of the profit that you’d derive from a future relationship with a customer. The total revenue you’ll earn from a customer during the time he spends with your business.
It is, therefore, important to know how much you’re spending to get a new customer and how much that customer will pay you in his lifetime. This is why this ratio is important. Here is how to calculate it:
Lifetime Value / Customer acquisition cost = Ratio of Customer Lifetime Value
Calculating lifetime value is challenging because it needs complex predictive analysis. Here is a guide that will help you with it.
If your CAC is lower than LTV, that’s great and you’re doing exceptionally well.
However, if CAC is higher than LTV, you need to either reduce CAC or increase LTV. This is why LTV:CAC is crucial.
- Brand search lift
Brand lift, according to Google, is the direct impact of your ads on your customer’s behavior and perception throughout their journey with your business.
Every ad and marketing activity improves brand awareness and you shouldn’t ignore how your ads will impact your brand in the long-run. For instance, if a consumer saw your ad but didn’t click. Later, he searched for your business in Google, visited your website, and purchased.
You cannot ignore these customers, right?
One way to measure it is to track the increase in brand search lift. If there is an increase in the number of search queries that include your brand name or a product name in a specific time period, this should be attributed.
You can track branded search lift for an entire year to show the effectiveness of your campaigns. Businesses and marketers often ignore branded search lift while calculating marketing ROI but it does have an impact.
So what’s the best metric to measure marketing ROI?
There is no single best metric that will truly represent marketing ROI. You have to use multiple metrics to justify marketing budget in the best way possible.
However, you need to make sure that the metrics you choose are relevant to your campaign’s goals. If your goal was to increase leads by 100%, you only need to focus on new leads and nothing else. Using irrelevant metrics will confuse stakeholders, and I’m sure you don’t want to confuse them, right?
Vikas Agrawal is a start-up Investor & co-founder of the Infographic design agencyInfobrandz that offers creative and premium visual content solutions to medium to large companies. Content created by Infobrandz are loved, shared & can be found all over the internet on high authority platforms like HuffingtonPost, Businessinsider, Forbes , Tech.co & EliteDaily.