If you want your marketing campaign to be a success, sometimes you have to do whatever it takes! That means calculating ROI.
That’s one of the lessons to take away from Nike and its “Just Do It” campaign from the late 1980s. At the time, it had experienced its very first sales contraction in company history. It had lost its position in the footwear marketplace to Reebok, an upstart brand that had pretty much risen out of nowhere.
Nike went back to the drawing board with an extensive market research and rebranding effort. The result was their “Just Do It” campaign — and it was a doozy. Thanks to Just Do It, the famous shoemaker experienced an astonishing sales increase of 1,000% over 10 years. $800 million in 1988 became more than $9.2 billion in 1998. Nike still uses the Just Do It campaign 28 years later, and sales have grown by 30 times since then.
The Value Of Return On Investment
These kinds of returns on investment (ROI) are what marketers and business owners live to see. Among all the different marketing metrics, ROI is one of the most important numbers you can track. For every dollar you put into your marketing, wouldn’t you want to know whether you get back more than a dollar or less? ROI can tell you definitively which marketing strategies to take to the bank, and which you should kick to the curb.
When calculating ROI, you just have to follow a relatively simple formula. Take your gain from an investment, subtract the cost of the investment, then divide by the cost of the investment. That might be a little hard to wrap your head around, so let’s see an example!
Say you spend $2,000/month on a newsletter marketing campaign that brings in 20 new clients, lowers your attrition rate by five customers, and creates 10 referrals per month. If each of these 35 customers spends an average of $250/month, then your campaign has yielded an extra $8,500 per month. By taking $8,750 minus $2,000 (the cost of investment) and then dividing by the investment of $2,000, you can compute a 337.5% monthly ROI, or a little more than 3x.
Calculating ROI? Here’s What You Need
The math itself may be pretty straightforward, but what’s not so simple is the sheer variety of factors that can affect ROI. In the newsletter marketing example, there are 3 very important elements that influence the success of your marketing strategy. First is knowing how many sales you make in an average month. That gives you a basis for comparison. You can tell whether or not you saw any increase in customers after the campaign goes live if you know the average sales numbers. It’s virtually impossible to determine your progress if you don’t know your starting point.
Another important element of this formula is the cost of the marketing tool in relation to the profits it provides. In this example, the newsletter campaign costs $2,000 but brings in an overall profit value of $6,750. In simpler terms, every dollar you spend returns $3.37. That’s a fantastic return!
Then, there’s our third factor in this example: the ongoing effectiveness of the marketing strategy. Many forms of advertising struggle with diminishing returns over time. We live in a society where people are inundated with thousands of advertisements per day. Naturally we’ve become especially good at tuning them out.
Newsletters are somewhat immune to this desensitization because they are a constant source of new and engaging content. Instead of seeing diminishing ROI, newsletter campaigns tend to gain momentum (and returns) the longer they are implemented. But you can’t know what kind of return you’ll get until you try the campaign and start calculating ROI for yourself. That makes planning a challenge sometimes.
Dealing With ROI Uncertainty
Since you can’t see the future, calculating ROI can be difficult. For some campaigns, the first month may be the strongest, while other campaigns may not see big returns until several months later. Newsletters often fall into this category, as do most social media and content marketing strategies. In addition, new customers resulting from these types of marketing campaigns may come later. On the flip side, though, leads generated are higher quality, because they’ve built up that relationship and trust with you.
The greatest hurdle to tracking ROI is that uncertainty. So, what can you do about it?
Ultimately, you want to test how a change in your marketing will affect your bottom line. These 3 factors are the most important to consider for any marketing campaign:
What is the strategy being implemented?
How much does the strategy cost?
How much does the strategy return?
If it’s hard to figure out any of these factors, you can fill in the gaps by tracking other key metrics. As the other numbers change, you can establish a causal relationship between the campaign you track and its effects on your business overall.
Monitor the metrics of referrals, retention, and the average spending of each client over a period of time. These numbers will give you an idea of where you’re at. They’ll allow you to compare an average to the effectiveness of a new marketing strategy.
Lastly, keep in mind that some facets of a marketing campaign can’t be measured by hard numbers. For instance, newsletter marketing focuses on creating long-lasting relationships with customers. You can try calculating ROI in terms of retention, referrals, cross-sells, and upsells, but at some point, the biggest sign of ROI may just be happier, more dedicated customers.
To learn more about how a custom print newsletter influences business growth, request a copy of our Amazon bestseller, Newsletter Marketing.