Calculate your Marketing ROI

Before you can present your marketing budget, you need to calculate the ROI of your entire marketing program. Here’s how you can do that:

Step 1: Do the math.

According to Investopedia, determining marketing ROI requires this formula:

(Sales Growth – Average Organic Sales Growth – Marketing Cost) / Marketing Cost = ROI

Let’s break this down:

First, choose your time period, such as a year, quarter, or month. For starters, choose the last fiscal year. From there, determine your Sales Growth in the time period. 

Then evaluate recent years, for example, to calculate the Average Organic Sales Growth. This can encompass the company’s lifetime, since you started digital marketing, or just the past few years, depending on how much data you can get your hands on. 

Then calculate the Marketing Cost for that time period and complete the formula. Your ROI will be a number below zero, so multiply it by 100 to get a percentage. That percentage is your overall ROI.

How does this simple formula work? It assumes two things: 

  1. Not all of a company’s income comes from marketing.
  2. Income above the Average Organic Sales Growth comes from marketing.

While not a perfect measurement, this formula gives you a good idea of how marketing impacts the overall sales of the business. 

Actionable insight: When determining your Marketing Cost, don’t forget about the time (employee pay and benefits) and money spent (on advertisements, software, platforms, events, and more).

Step 2: Focus on campaigns, not channels.  

Proving ROI is necessary when building a marketing budget, which is why you need to focus on hard metrics that prove sales, rather than soft metrics that show possibility. (No boss wants to hear “I need more Facebook advertising dollars so I can increase my number of followers.”) For example, social media can help lead prospects to a sale, but they usually help with brand awareness, building community, and offering customer service opportunities, which all have soft metrics attached to them (number of followers, likes, comments, and DMs). 

How do we prove ROI using the formula above? We primarily focus on:

  • Annual/Fiscal year ROI 
  • Campaign-based ROI

By focusing on an entire campaign to calculate ROI, we focus on the hard metrics. If we try to determine ROI based on channels (email vs. Facebook, for example), we’ll be faced with hard and soft metrics, which are not comparable. 

For your boss, hard metrics will matter more than soft metrics even though as a marketer, you understand the value of both. But value does not equal sales dollars, so we need to showcase the sales dollars brought in by specific campaigns.

Plus, no one channel leads to a sale. 

Actionable insight: Determine your ROI for your last marketing campaign. Compare it to the campaign before that and the overall fiscal year ROI. How much did the campaign increase the ROI compared to the regular, daily marketing efforts outside of the campaign? Take notes to help you during your next marketing budget meeting. 

Looking forward: In this blog post, we show you how to use your ROI to likely get your next marketing budget approved.