How to Determine Marketing ROI for a Small Business
Updated: Oct 7, 2022
Marketing for small businesses needs to be thought through. We don't have a $10M marketing budget like corporations, so everything that we do should be creating some sort of value, and the activities that aren't producing should be changed. Probably quickly, too.
So let's put some numbers to different marketing activities! What better way to see a ranking of your efforts and determine which ones work great and which ones need to be changed?
What’s the purpose of a Marketing ROI?
The purpose of determining a marketing ROI is to gauge how well your marketing efforts are working. For anything that you do in the marketing world, you have to invest time or money (or, more likely, both). Getting an ROI (return on INVESTment) number for each of the different marketing activities is a quantifiable way to determine your strategy going forward.
If you spend a whole bunch of time on LinkedIn, but don’t see any value being created from it, maybe it’s time to switch to Facebook, or change up the content you post. It’s very easy to let marketing activities mindlessly continue if you don’t see a big red number telling you that it isn’t working how you want it to!
On the flip side, if email campaigns are working really well for you (high open rates, click through rates, and conversions from them, for example), you could spend more time on them by making them even better.
The summary is... a Marketing ROI helps you change up the activities that aren’t working great, and further lean on the ones that are working well for you.
What numbers go into a Marketing ROI?
There are a few different ones... maybe a couple more than you'd expect.
Let's start with the easy ones - dollars in vs dollars out.
Dollars in... aka Revenue
The amount of revenue that was directly generated from a marketing activity
It's worthwhile to keep track of the number of customers too - that way you can figure out average ticket by marketing channel
Dollars out... aka Expenses
The amount of money you had to invest into the marketing activity.
Ex. Paying for ads, paying for SEO services, networking groups member fees, etc.
That's the easy part (assuming you have decent records in QuickBooks and your CRM and can get the data out of it).
However, rough numbers are okay to get started because if one comes out to 21% ROI and another comes out to 24% ROI, you can say that they are pretty similar. You'll still like them more than the 3% one and less than the 60% one.
With that being said, exact numbers are always going to be ideal, but that can be a bit more difficult/time consuming to do unless you have an analyst that can automate the data flow and build it to be self-sustaining (which is very doable, but you might not need it to get a rough picture).
For those that want to go a step further... check out the average ticket by activity. This ties in a very interesting component of your marketing analysis.
If Networking, for example, doesn’t yield that many conversions for you, that might not be a terrible thing. Those conversions could be the highest ticket price across all activities so you’d be okay continuing to go to the events because you know that eventually, someone that really knows/likes/trusts you will be paying top dollar for your services.
On the other side of the spectrum, if you get a whole bunch of tiny conversions from Facebook, for example, that’s great because it’s money in the door and expanding your reach of clients by a lot, but there is opportunity there. Maybe the ads you run ten to attract single project clients, not ongoing retainer clients. You could then change up your ads or change your interactions with them to encourage repeat business. All part of the strategy discussion that comes from putting numbers to these parts of your business.
How about all the "Other stuff" that happens with Marketing?
Everything you do in marketing should also increase your brand value. Posting on LinkedIn might not get you a client, but you will stay top of mind with people. There is value in that, we just need to quantify it.
Obviously LinkedIn posts aren't equal to a new client, but it's worth some fraction of your revenue.
The example I like is a Geico billboard...
You see them all over the place and some of them are as simple as the gecko and a "15%" on it. Did that make you buy insurance through them? No, probably not, but you certainly saw that, then thought of their slogan and other ads you've seen from them. Very top of mind. Tough to quantify, but we can agree that it's worth "something".
The conclusion of quantifying Brand Value from marketing activities is to say that it's safe to put a small fraction of your revenue as the value of these "brand value" pieces of marketing. That fraction should probably be something around 20% of your revenue or so, depending on your business. Safe to say it probably shouldn’t be something above 50% though, and I can assure you it’s not 0% either… the true number is up to you and your marketing brain.
This would mean: Total Marketing Gain = Revenue gained + Brand Value gained
On the expense side, it's easy to say the classic "if I get one sale from this $200 networking group, it'll be paying for itself!"
While that's fair from a dollars in dollars out perspective… think about your time. If you have to be at that meeting for 1 hour a week and your hourly rate is $100, then you spend $5,200/year plus the $200 you paid to be a part of the group. Hopefully that one sale you get is a really big sale…
Things you need here are just the rough number of hours you’ve spent on the activity and your hourly rate.
So the Total Expenses = Direct Expenses + Hours*Hourly Rate
What's the formula for Marketing ROI?
Once you have that more full picture of your different marketing efforts, you can get the true ROI for your business! The ROI is really just a comparison of the total marketing gain and total expenses.
(Total Marketing Gain - Total Expenses) / Total Expenses = ROI
What to do with the ROI numbers now?
Once that is figured out, you can clearly see the ranking of your different marketing activities, see which ones are the all-stars and which ones might need to switched out of, or at least changed! Maybe this leads you to invest more in the all-start SEO channel and leave the networking group that isn't cutting it enough for you.
If you want to schedule a demo of our Marketing ROI tool and talk through it with our team, book it here!
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