Typically, Return On Investment or ROI has been one of the most widely used terms in marketing, but with the advent and increasing popularity of digital marketing, it has gained renewed significance. ROI is a simple campaign analysis that measures the success of either a holistic or campaign based marketing efforts. Generally, brands calculate marketing ROI by the increase in revenue or sales growth, directly impacted by the campaign. A good ROI is a reflection of a fruitful marketing investment and thus is instrumental in planning and budgeting future marketing spends.
Typically, ROI calculations seem to be relatively simple and can by derived by dividing the gains of the marketing investment by the marketing cost. When the resulting ratio or percentage is a positive one, that translates into a positive ROI, vs if it’s a negative one, it reflects a loss of the investment. This is also known as the Revenue to cost ratio and a typical 5:1 is considered to be a reflection of a successful marketing investment. Of course the target ratio for is representative and will vary based on aspects like any incremental cost incurred to execute that campaign (i.e. the variable costs), industry specific trends, investment cost structures, time frame, and duration of campaign etc.
However, with emerging technology-enabled tools, marketing communication has undergone a sea change and so has the process of calculating marketing ROI. In the growing age of the Big Data, the significance of ROI has been redefined and evolved. Simultaneously, the global pandemic and the economic crisis, businesses are now keen on tightening the budgets and economise spends, even as they find ways to survive and possibly expand their business. Under such circumstances, there is a heightened need for more efficient and result driven investments for marketing, putting the spotlight on ROI-driven business decisions.
Today, ROI as a concept is moving away from being merely a tool that analyses the success of a campaign based on revenue generation, to an insight driven, decision enabling tool that is helping campaign consultants, marketers, and brands to also craft future campaigns. In other words, marketers today seek to understand not only the actual revenue impact but also dive deep into which program/ campaign, which platform and what strategy was instrumental in driving those results. And the wide array of modern marketing analytics tools, such as BI/reporting platforms, marketing automation, tracking pixels/tags, and attribution models, lead generation, etc., is all adding up, enhancing the ways to measure marketing effectiveness and its contribution to sales. Further, digital platforms, like websites, social media, and mobile apps, etc., come with integrated API’s that offer analytic reporting, which can be combined to obtain a central repository to derive in-depth ROI based campaign analysis and insights. Modern campaign Management consultants are leveraging these tools effectively, so as to help brands reap the benefits of not just successful sales campaigns but of overall profits.
Generally, ROI from marketing campaigns is mapped at the strategy stage, and in a closed – loop fashion, with an approach to drive efficient campaign measurement and optimisation. As marketers become increasingly accountable for generating revenues the ROI based campaign analysis becomes a constant and integral part of a successful marketing strategy. An efficient strategy that is designed around the already agreed upon ROI goals, can be a strong strategic enabler for the entire marketing team, helping them gain more trust of the sales staff, earn greater budgets, and become instrumental in driving greater business impact.