What was your marketing budget last year? What was your profit last quarter? What were your cost of goods sold? Most business owners I know can answer these questions quickly.
Now, what was your ROI last year for each marketing campaign? Unfortunately, a high percentage of business owners I speak to do not have the answer to this question. And ironically, this is probably the single most important number for your business. Why? Because your marketing ROI (Return On Investment) tells you how to make money. Knowing your ROI enables you to literally say “for every dollar I spend on my direct mail campaigns, I generate eight dollars in revenue… but every dollar I spend on Facebook advertisements I only generate seventy-five cents of revenue.”
Can you see why this is a big deal?
Knowing your ROI will allow you to determine which forms of marketing are worth your money and which simply are not. In general, if a marketing campaign generates a positive ROI, it is worth continued investment. On the other hand, if you have determined that a given campaign is generating less revenue than the cost of the campaign… stop doing it!
Now, I should note that the ROI of any campaign should not be calculated in a vacuum. You need your numbers to have statistical significance, if you run an email campaign for only a month, it is going to be very difficult to calculate an accurate ROI. And the ROI can be skewed if you change the way you implement a given campaign. For instance, changing the copy on a billboard or revamping your website can render the old ROI completely meaningless. Therefore, just because a campaign is generating a poor ROI does not mean it should be abandoned. First, evaluate your approach and see if you are doing something wrong. But if you are convinced that you are executing an initiative well, and if you have run it long enough to generate reliable data, by all means dump anything with a negative ROI.
The numbers on your company income statement will tell you how profitable you are. But your ROI will tell you how to become more profitable. It is a critical calculation that every business owner simply must know—so if you are not sure what your marketing ROI is, get to work figuring it out!
Do you know your marketing ROI? If not, why not? If so, how has this information made your business more profitable? Leave a comment below!