How understanding ROI and setting correct expectations can play a critical role in your return on investment
Return on investment (ROI) is the measurement for the success of any investment that your business takes on – in marketing, training, software, hardware, even staples and paper, etc. It’s the benchmark for your bottom line. It tells you whether your investment was successful and how you might make future ventures in your business.
It’s great to be ambitious and continue to raise the bar in your business. Stagnation is the swamp that eventually swallows businesses whole. So, it’s appropriate to seek a high ROI.
But on the other hand, it’s critical that you set yourself up with realistic goals. Sure, everyone wants to increase their revenue by 10,000% but in the real business world – with real human customers and real-life constraints – this is not credible for most companies.
We all want our dollars turn into more dollars. How do we maintain that determined business drive while also creating realistic expectation on our ROI? And how do these expectations play a role in a successful marketing campaign?
Know thy self (and thy business)
To correctly gage ROI and to accurately predict the expected ROI you need to know how your business has historically performed. This takes detailed data over a substantial period of time and a correct analysis of this data (Blog: When Was The Last Time You Looked at Your Data?). You then take this data and decide where your marketing dollars are best spent.
For instance, if your business has seen a great ROI from email marketing campaigns but social media campaigns flopped, it’s not realistic to expect a 5x ROI from a social media campaign that has historically underperformed. You’ll either need to try a different approach or consider a different marketing avenue.
In a nutshell, you need to know your business and your goals in order to set a realistic expectation for your ROI.
Crunch the numbers
The standard ROI formula goes like this: Net return ÷ cost of investment x 100.
Seems straightforward enough but this formula is incomplete. Calculating ROI for marketing is notoriously difficult for a number of reasons. Huge corporations actually have customized complex formulas and algorithms that factor in any number of variables to accurately assess their marketing ROI.
You might think your ROI on a Google ad campaign is a simple formula but it can sometimes take months to see the full fruit of your marketing labors. Additionally some ROIs must take into consideration your business’s gross margin target, overhead expenses, cost-per-lead, and so much more.
The lesson is this: It’s never a good idea to invest blindly in anything. So, review your data, crunch the numbers and do your due diligence before setting goals.
There’s another factor to consider in your ROI known as lifetime value. This is the value a customer brings to your business over their entire lifetime as your loyal supporter. It’s important not to get too fixated on that single transaction because a great business builds loyalty and trust, which leads to repeat business.
Let’s say you ran a marketing campaign that brought this hypothetical customer (let’s call her Kay) in through a pay-per-click ad. Kay factored into your ROI on that campaign, but she’s now a lifelong customer who will continue to invest in your business. Perhaps on the that first PPC ad the business only achieved a 2x ROI. Well, that’s not a great investment. But when you factor in the repeat purchases that Kay has made (and many more people like her), that ROI starts to grow to a 6x dividend as the months and years go by.
Give me the ROI numbers, already!
All right, all right. We know you’ve been waiting for a direct answer to ROI expectations but we wanted to make sure that the full scope of ROI calculations was understood first.
Here are the real numbers you can expect from a good marketing campaign.
You’re basically looking for a 3-5x ROI as a standard for a successful investment. So if you put in $1,000, you could expect $3-5,000 back.
This is a ballpark estimate because it really does vary by industry and it depends on the type of investment, each individual businesses’ benchmarks, bottom line and long-term business plan, in addition to any number of specific targets.
2x ROI is so-so, but for some businesses this can be a success depending on long and short-term goals. 10x ROI is fantastic and every would-be marketing guru wants to claim they can deliver this but it is rarely realistic.
Are you ready to see your best ROI? We can help you assess your business’s bottom line and create a campaign that can see an obtainable and valuable return on investment.