Return on investment is a practical measure that evaluates the revenue and efficiency a number of different investments. ROI helps businesses to pursue their objectives and spend their money in good ways. In other words, calculating ROI can help you understand what’s working and not working in your business so you can make changes. In addition, the importance of ROI in budget allocation cannot be neglected. Companies that calculate the ROI for their investments, can determine which projects to pursue based on their needs and potential profitability. Concentrating on the importance of the ROI can help us to get a better result from our project’s budget.
Marketing Return on Investment (MROI)
The ROI calculation is simple but there are some limitations in our way; because investment in the marketing is different from investments in other fields. In the marketing, precise calculation of ROI is more difficult, due to the running a number of the campaigns at the same time and difficulty in calculating ROI in the advertisements. It should be noted that in ROI calculation, the time factor for the running campaign is completely ignored which is a major drawback of the measure. You should measure ROI on all your marketing efforts so you can be sure to spend your time and money on activities that generate the best results. To understand better, here is an example: There are two companies A and B. The ROI of company A is 50% and the ROI of the company B is 30%. At first sight, the performance of company A is better but if we look deeper, the ROI of company A was during the 4 years and the ROI of the company B was during less than 1 year. Consequently, the performance of company B is better undoubtedly. The other challenge is the effect of economic inflations that affects a customer’s purchasing ability. For instance, the calculated ROI in one year can be less than the ROI in the previous year in the same situation. Moreover, the calculation of ROI for customers that know us from Word-of-Mouth marketing is also difficult. There are different factors that affect the ROI, however, it is difficult to recognize which activity has more efficiency. Furthermore, calculating MROI is time-consuming. In the beginning, the main goal is to capture the customer`s attention, then increasing sales and finally return on investment. Also, it is almost impossible to find out which campaign has the most revenue for us. For more precise ROI calculation, we need to evaluate the costs and our performance as each team and stage has its own expenses. Here is the most commonly ROI formula:
ROI= gain from investment-cost of investment/cost of investment
We also can use Customer Lifetime Value instead of marketing costs. CLV is the whole revenue that customers generate during the time that they have an ongoing relationship with us and response to their needs with our products and services. Customer lifetime value has significant importance in increasing MROI. Furthermore, for having loyal and satisfied customers, we should increase customer lifetime value. In other words, CLV is a value that we can evaluate our performance from customer’s purchase and thus, make the impact of challenges fewer. It should be noted that the whole expenses will not back but we can expect the return on investment by increasing customer lifetime. Moreover, pushing more leads to the sales funnel will have more costs so it is better to maintain our relationship with loyal customers that have a positive experience.
For marketers, there are several benefits associated with using ROI, including:
- Justifying marketing spends: Typically, marketing is a significant expense for most companies and all managers focus on best profit possible. MROI helps prove that return on investment has amazing impacts on our company`s revenue.
- Deciding what to spend on: MROI typically calculated at the program or campaign level in order to show marketers know that which efforts have a higher return. However, we may face many challenges in ROI as we mentioned above. MROI helps us to estimate the future costs so that allocate the budget based on the campaign and programs.
- Comparing efficiency with competitors: Tracking competitor’s MROI helps us to compare our efficiency with the others; It should be noted that knowing the MROI details is almost impossible, so general data about competitors can also help us to measure our performance against other industries.
- Make marketers responsive: A professional marketing concentrates on sales, incomes and costs. Measuring how efficiently the organization is using the company’s money keeps everyone responsive for using those money. Individual marketers should think and justify the money they want to spend.
In conclusion, the effect of digital marketing on ROI cannot be neglected. Businesses which pay more attention to the MROI, have more self-confidence in comparison with their competitors. With the benefits of Digital Marketing, which has a lower cost and more efficiency, businesses will experience a higher MROI. Moreover, it is easy to calculate the efficiency of ROI in social media by monitoring tools. For instance, the number of views of a video or number of clicks on the link per person is almost simple but calculating ROI by ATL advertising such as billboard or television cannot represent precise information. One of the vital challenges is calculating ROI is time-consuming. In other words, firstly, our main goal is to capture the customer’s attention, then increase the sales and finally, calculate the return on investment. Furthermore, creating new content, decreasing the spare costs, Search Engine Optimization, considering landing page and sales funnel in order to increase the leads, can have positive results for the business.
Macan digital marketing agency is one of the agencies in Dubai that planned strategies and executions in the marketing field. Macan digital marketing agency has a uniquely intense focus on achieving measurable results for the clients.