How Can I Tell If My Marketing is “Working”?
Everyone who has ever done any marketing has in this situation: Having invested a considerable amount of money in a marketing campaign, you’re still waiting for the phone to ring. Perhaps a few new clients come through the door, but were they the result of your marketing efforts or not? Is there a way to tell if you got sold a bill of goods or if the effort and expense was worth it?
The ROI or “Return on Investment”
Marketing done right is most analogous to financial investing. The money that you invest in your marketing may return anything from zero to more than one hundred times your initial investment, but there is no guarantee. Just like a stock might go up or might go down, your print advertisement might be seen by the right people, or it might not; your TV commercial might convince or it might not; your YouTube video might go viral or it might go largely unnoticed.
Precisely because marketing is unpredictable is the reason that you should always be measuring your return on investment. If your financial advisor could not or would not tell you whether you had made or lost money, you take your money and invest it somewhere else. Similarly, any marketing company that does not attempt to measure the effects of their marketing is not worth working with.
Be wary of working with any digital marketing company that will not make it easy for your to calculate the ROI of their products. It often means that they do not deliver as promised.
Calculating Your Business’s Marketing ROI
The basic formula for a marketing return on investment is:
where income is defined as gain resulting from your marketing and cost is the price of the marketing campaign.
For example, if you spend $1000 on a PPC campaign and you made $3000 from clients who found you through that campaign, your return on investment would be:
In this hypothetical situation, you should invest as much money as possible in your marketing as long as you have no expectation that the market is already saturated.
Asking the Right Questions
Knowing your marketing budget without knowing your return is useless. It is impossible to tell if you are over- or under-spending on your marketing, whether your marketing is effective or ineffective, whether you should cancel it immediately or increase your investment tenfold. While it is possible to get a blurry picture from the overall revenue of the business and compare it to the marketing budget, there is no replacement for knowing your ROI.
The Importance of Analytics
Calculating your own business’s marketing return on investment is not difficult. Typically, it involves setting up campaign tracking and computer-aided data collection, but it can be as simple as asking your new clients and writing down their responses. Once you know where your clients come from and how much you’ve spend on various marketing strategies, you can respond by investing more of your budget in the most effective part of your marketing.
Most website owners are used to hearing from their digital marketing service provider about how many visitors have been to their site and little else, but actually the relevant metric is the return on investment for the site and all related marketing campaigns. A carefully crafted system of data collection and analytics will separate out the different methods for attracting new customers and measure how, when, and why these methods convert better than others. For example, if you are attracting a lot of visitors to your site with great content, but none of those visitors end up being clients, you might want to reconsider your strategy or try to convert better on those visitors with a new website.
Staying away from marketing because it is unpredictable is the same as putting your money under your mattress. It might be the surest way of keeping what you have, but you’ll never grow your portfolio or your business unless you take risks. By knowing the relevant metric (ROI), what that means, and how to calculate it, you can proceed in marketing your small business with confidence.