What’s the Best Way to Calculate ROI?
With marketing, your goal for ROI is usually either brand awareness or lead generation.
If it’s brand awareness, it’s very, very difficult to tell what your return on investment is, because you don’t see an immediate impact. But, with lead generation, you do. You see leads come in. They’re either someone emailing you, a contact us form, or it’s a phone call.
In order to calculate the actual return on investment, you need to figure out how many leads you got first, and then determine what percentage of those leads will likely turn into sales.
Now, there may be a step in-between, like appointments, but in the end – leads turn into sales.
How Much is a Sale Worth?
To our next question to calculate your ROI: how much is a sale worth? We need to answer this question so we can compare it to our marketing cost to acquire the lead.
For a lot of our clients the sale value depends on which product or service was sold. Maybe 10% of the time, it’s a $200 sale. Another 50% of the time it’s a $1,000 sale, and the rest of the time it’s a $10,000 sale. Your business is probably broken up in similar ways. The key is, you need to break it down, and estimate what you think a sale is worth and what the conversion of leads to sales is.
Once you do that, then you have the information for revenue. That’s your top line, you’re going to divide here. On the top you have revenue that you’ve generated. On the bottom you have the amount that you spent on marketing. You’re just going to divide the two.
Let’s say you generate $10,000 in revenue and you spend 2,500 hundred dollars, so your return of investment is 400%. If you’re doing some marketing and you can’t do that calculation, or your marketing agency can’t do that for you, that means you’re probably not actually generating leads, you’re creating brand awareness. Is brand awareness good? Of course. But, if it doesn’t generate leads, it’s not paying the bills, and I think pretty much everyone that is reading this, wants leads, they want bills to be paid. Brand awareness is a nice secondary.