In order to understand the value of your hard-earned marketing dollars, you need to start with your goals in mind. What do you want your marketing to do for you? Increase traffic to your website? Generate phone calls to your business? Launch more form fills on your site? Raise the number of your Facebook likes? Drive more visits to your storefront? These are just a few of the results that marketing can deliver. But the overall ROI, or return on investment, is related to how much new business you’ve generated with these results.
What Does ROI Typically Look Like?
Most businesses do marketing to achieve one thing: to raise their bottom-line. You want more sales, period. Does that mean more customers? Maybe it means getting your current customers to spend more money each time they do business with you? Whatever your needs are, you must know your goal before you get started.
This is how a business determines their return on investment. Let’s use a hypothetical business called Bob’s Oil Change. Bob is having an OK year: revenue is up 5% over last year. Bob’s customer base has stayed about the same as last year. He hasn’t lost any good customers, but he hasn’t seen an increase in new customers, either. Bob knows that, if he could add 20 new customers a week and each customer gets nothing more than an oil change, each customer will spend $50 on average. About 50% of his oil change customers also get additional services, including brakes, tire rotation, air filters, etc. An average sale for Bob is now at $150. Bob stands to make $3000 more each week, or $12,000 more each month if he can just get 20 new customers a week.
Let’s say that Bob has $3,000 a month for marketing. For every $3,000 Bob spends, he hopes to get $12,000 in sales. Bob’s return on investment is 4:1. An increase of 20% in revenue for Bob (4 times what he was achieving before marketing!)
Lifetime Value
This doesn’t even take into account the “Lifetime Value” of a new customer. If Bob retains a new customer for 5 years on average, and each customer spends $600 a year, that’s $3,000 spent per customer over their lifetime! Bob isn’t going to retain every customer, of course, so let’s just say that he’s able to retain half of them (500 for easy math.) The annual campaign will have brought in $1,500,000 over the next 5 years! Not bad for spending $36,000 this year.
What ROI Does Not Do
While ROI is important for determining marketing success, what it does not do is gauge intangibles that are just as crucial to your business.
Branding, first of all, is very important. You might find that the branding you invest in now might not affect your ROI for many months, or even years! However, when someone does need your business, they need to recognize your name when it comes up in a Google search result.
Social media interactions often have nothing to do with ROI, but they are an important part of your marketing. Maybe that Facebook post of your employees having fun at work won’t bring in any new customers right away, but it will help people understand that your business has friendly people. It builds “Brand Personality.”
Bottom Line
Just like in a marathon, start with the finish line in mind. What are your needs? What are your goals? How do you get there? Then you can truly determine what good ROI looks like for your business.
At QBall Digital, we start each conversation with a customer needs analysis to help you determine your goals, and ultimately, your ROI. Let us help you with a free consultation. We look forward to meeting with you to discuss how we can help your business.
