One of the most important aspects of everything you do when marketing is to know how its paying off. If you don’t know your return on investment (ROI), then youre doing it wrong. There are so many tools that you can use to keep track of what you’re doing and what the results are that there is no reason not to know your ROI. There are only three factors you need to consider in order to calculate your return on investment (ROI): the cost of the marketing effort, traffic brought due to the marketing effort, and the conversions made. Knowing how those factors are related is the key to understanding your ROI.
How to Determine Your Return On Investment (ROI)
You can easily determine your ROI simply by checking what the value of your conversions is versus the value of the marketing effort. So, if you spent 1000 dollars sending traffic to a particular sales page, and made 2000 dollars, then your ROI is 100 percent. Now you can spend that 1000 dollars over again to make more money.
However, not all conversions are monetary. For example, sometimes a conversion will simply mean that someone signed up to your newsletter. In that case, you can compute the cost of acquiring the list member by dividing the cost by the number of sign-ups. This will be your cost for acquisition.
Later you can use that cost to determine your return on investment as the list converts those sign-ups to buying customers. For example, if it costs you 20 dollars to get each list member and you make an average of 50 dollars off each list member, then you know that it’s worth the effort and cost to build your list members.
Most people at least have a good idea of their ROI, but the problem is that most people don’t keep track of any of this type of information. They are aware of the ROI but essentially don’t know what to do with that information to make it better. Many just end up working in the dark trying to make plans to accomplish success without even understanding what actions you are doing to bring that success. Starting to keep track of your numbers is the first step in truly understanding the process and its implications.
To keep track of things, you can create a chart of all your expenditures and income so that you can figure your ROI. The most important numbers are what you spent versus what you made. Once you settle in on that, the other information will still be important, but these are the numbers that will essentially answer the question, “Did this work?” Really pay attention to what your marketing efforts were in times of your highest and lowest revenue. Look for patterns so that you can find a way to repeat the actions that led to your biggest success and not repeat the actions that caused you to lose money. It’s a simple concept, but one that is often overlooked.
Defining what you will measure, implementing tools that can measure the progress, and then using the results to inform future actions will yield powerful results. If you share those results with stakeholders and others who help you make decisions, you can start to build an informed team of people to help you make marketing decisions. You can even compare your results to industry averages to find out how well you’re doing compared to others. Knowing your ROI is an essential first step in making informed marketing decisions.