Understanding ROI: Dissecting Ad Spend, Results, and What You Should Expect

The only way to ensure your marketing is continuously optimized is to track and measure your results. Although understanding marketing ROI can be complicated, businesses must understand how to measure ROI to know what to spend, where to improve, and what they can realistically expect for returns. This way, your brand always has insight into what's working and what's not — and respond accordingly.

To lessen the complexity, here's what you need to know about how to forecast marketing ROI and how to improve ROI in digital marketing.

What is ROI in Marketing?

ROI, or return-on-investment, is a measurement used to calculate their net income compared to how much is spent on a given investment. It is used to guide decisions and optimize marketing efforts.

A marketing ROI aims to get more back on your marketing initiative for every dollar you put into it.

How to Calculate ROI?

Calculating ROI can be challenging, especially when you don't have as much data at the beginning of an initiative. However, when you stay consistent with inputting your results, you will make more informed decisions on what initiatives deliver the best results and which aren't reaching the goals well enough to continue investing time and money into them.

To calculate ROI, you'll need the following formula:

(Sales Growth - Marketing Cost) / Marketing Cost = Marketing ROI

To calculate Sales Growth in this formula, you'll need this formula:

Sales Growth Percentage = (Current Period Sales - Previous Period of Sales) / Previous Period of Sales X 100

To calculate marketing costs, you'll need to add up every expense associated with the marketing initiative you're measuring ROI to evaluate.

Allocating Resources for Marketing Spend

Spending money on marketing is crucial to future success and growth. Where you allocate your budget will determine how well you optimize your marketing spend. To do so, you'll need to measure and pivot resources depending on what's working.

How Should Resources be Allocated?

Allocate your resources to channels and tactics that have the best impact on the goals you're trying to achieve. Take, for instance, email marketing. The average email ROI is $36 back for every $1 spent. Most brands allocate a good portion of their budgets to email. However, if your results are significantly less, it's better to decrease your investment in this tactic and give more resources to another one performing better.

Measuring Campaign Success

When you measure the success of a campaign, you'll need to: 

• Establish baselines for future success
• Measure the impact of each campaign
• And overall impact

• Identify the right mix and where to allocate funds based on what's working

How Often Should Campaigns be Measured?

How often you measure your campaigns will depend on your goals and the campaign type being measured. Some research has found that about 32% of businesses report tracking campaign success once a month, while 43% said at least once a week.

What Kind of ROI Should Be Expected?

What is considered a good marketing ROI will differ from business to business and tactic to tactic. It's also good to have realistic expectations and be aware of revenue-related factors. Don’t give up too soon; keep an eye on weak points that should be pivoted for best results.

What is a Good Marketing ROI?

The key is to consider how much more you're getting versus how much you're putting into it — and whether it's worth it for your company.

What is Realistic?

According to Forbes a good baseline for evaluating your investment with realistic expectations is to consider "an annual ROI of approximately 7% or greater" to be good.

Things to Consider

According to AllSeat, there are at least four factors you should consider most when measuring your ROI:

1. Financial Profit — ROI helps you evaluate how much your business is profiting from a marketing tactic. If you're not seeing desirable results, drop it before it costs you more.
   
2. Sales Revenue — use ROI to determine how much of an impact an event, promotion, or strategy impacted your sales to measure its success.
   
3. Brand Awareness — another factor ROI can influence is brand awareness. You may not see a sales impact immediately, but results can also be seen in how many more consumers know about you and your products/services. For instance, you can see this through likes, comments, shares, etc., when measuring the success of a social media platform.
   
4. Engagement — likewise, engagement is a powerful tool for measuring your ROI. Increasing consumer interactions on a given channel can express significant success in reaching and resonating with target consumers in a given marketing initiative.

Maximize Your ROI with McClatchy

For the best results, work with experts like McClatchy, who know how to maximize your returns on all major marketing channels. Our specialists understand what works, are results-driven, and know how to improve marketing efforts.