Redefining marketing ROI: measuring what truly matters

Are you measuring the ROI of your marketing? Or, more importantly, are you happy with the return you’re getting? Well don’t worry, it looks like you’re not alone.  In their 2024 survey, Marketing Week found that 35.4% of B2B marketers and 34.8% of B2C marketers rarely or never measure ROI.

In this blog post, we’re going to break down:
• Traditional marketing ROI
• The limitations of tracking some metrics
• What metrics you should be focusing on
• How to implement a redefined ROI measurement strategy

So with a lot to cover, let’s get started.

Beyond clicks: why your marketing ROI isn’t telling the whole story

To calculate a traditional return on investment (ROI) you should use the following formula (profit made from marketing/marketing cost) X 100 = ROI

However, with many channels of marketing (online, offline OOH etc.) it can be hard to quantify the results of each, especially when they each have different objectives and ways to measure results. This is why it is a good idea to measure the ROI of each channel as well as the overall marketing, so you can ensure your budget is being spent correctly.

Some traditional channel metrics to measure are:
• Website traffic
• Click-through rate (CTR)
• Cost per lead (CPL)
• Impressions

The limitations of traditional marketing ROI

As mentioned, there are different objectives for marketing and as such some activities correlate more to the results than others. For example, if you run a campaign with a discount code, you can determine how successful that campaign is with how many sales you generate with that code. However, many marketing activities don’t directly correlate and therefore you can’t always attribute the ROI. This is because you might not know the full customer journey.

For example, a customer may see a social media post about one of your products, they then might go to your website and do some research by looking at product reviews and website content. They then might leave your website, and days later be retargeted with a banner ad whilst reading an online news story. The user could then click the ad, put the product in their basket and fill in all their details but not checkout. You then email them a code using some sort of messaging about ‘leaving something behind’ and they head to the website and make the purchase. Throughout the whole journey, the customer has engaged with multiple marketing touchpoints, but realistically it’s the email marketing campaign which is going to get the credit.

The journey described above is something that Google coined ‘The Messy Middle’ and it shows that today’s buying journey is no longer linear and during the exploration and evaluation phases, a customer could engage with multiple brand and marketing activities.

Overall focusing on individual channel results and not knowing the full picture, could lead you to think certain aspects of your marketing aren’t generating return, when in fact they are playing a key part.

Measuring what matters: key metrics for today’s marketer

The best way to measure the success of your marketing efforts is to ensure they align with your business objectives. Different businesses have different goals, and these goals can change over time. For example, if profitability is a key goal for you then aligning your marketing efforts to this would mean trying to generate a high return whilst keeping your profits low. Whereas if you are a new business you might want to focus on growing brand awareness and therefore focusing on customer growth and sentiment metrics will help you understand if your marketing is performing.

Below are a few metrics marketers and businesses should be focusing on to understand the ROI they are generating.

Customer Lifetime Value (CLTV)

Knowing your CLTV gives you and your business a long-term view. The metric estimates the total revenue your business can expect to generate from that customer during the relationship.

So why does this matter? Well firstly, because the cost and time required to attract new customers is high, therefore you want to ensure you keep them and they become loyal customers and even brand advocates to help you generate more new customers. To calculate your CLTV you should use the following formula:

Average order value X Number of orders per year X Number of years they have been a customer = CLTV

You can calculate this on an individual basis to understand who your most loyal and valuable customers are, or take averages and calculate it generally.

Customer Acquisition Cost (CAC)

As mentioned, the cost of acquiring customers is high, but do you know how much it actually costs your business? You will when you calculate your CAC with the formula below:

(Cost of Sales + Cost of Marketing) / New Customers Acquired = CAC

Knowing this cost can help ensure you are spending your budget wisely, understand how efficient your marketing and sales are and that it is in line with your business growth too. If you aren’t happy with the figure you calculate, then you should look to evaluate your strategies, resources and perhaps even the skills of those teams.

Churn Rate

Now you know the lifetime value of your customers and the cost to acquire them, do you know how quickly you’re losing them? This is where the churn rate comes in, and it helps you understand what percentage of customers you have lost over a period of time. If this is higher than the percentage that you’re retaining, then you could have a big problem. Calculate your churn rate:

(Number of clients lost / Total number of clients at the start of the period) X 100 = Churn Rate

Remember, if you’re churning a high number of clients and they are valuable ones, then you might have to increase your marketing budget or adjust your strategy to replace them.

Brand awareness and sentiment

Remember the customer journey is messy, and therefore you should always be carrying out brand activities to raise awareness of your business and its products or services. Doing this can help ensure potential customers remember to choose you when they are ready to make a purchase. Ways to measure brand awareness can be through social followers and engagement, branded search volume, website traffic etc.

Measuring these metrics and ensuring they are increasing will help grow your brand awareness, but then you should also be measuring your brand sentiment. This will help you understand and measure the perception of your business in the market and can help adjust your marketing strategy. For example, if you launch a campaign that isn’t well-received by customers, you should take the learnings to try and improve the success of future campaigns. Or if you have extremely happy customers and reviews, you should be using these in campaigns to attract new customers.

MQLs and SQLs

Understanding Marketing Qualified Leads (MQLs) and Sales Qualified Leads (SQLs) will help feed your sales pipeline, by scoring leads and ensuring you have a consistent flow of potential customers that are right for your business.

Your MQLs should come from your marketing activity and is where you can filter out any types of potential leads based on their engagement with your marketing activity. For example, you might have 30 downloads of a whitepaper (leads), but only 25 are MQLs because the other 5 are competitors looking at your content.

Your SQLs are then the next step in the funnel and involve your sales teams filtering out leads which aren’t correct. This could come from a quick discovery call and can help your sales team decide whether they need a sales meeting or proposal to try and convert the lead. For example, their budget might not align with your minimums and therefore this can be decided before time is spent on a proposal that will never be signed off.

Remember, how you qualify your leads should be determined by your business strategy and what type of customers you do and don’t want to work with.

Return on Ad Spend (ROAS)

When it comes to paid media, understanding your ROAS can ensure your campaigns are generating the best ROI. You can even set a target ROAS or tROAS to determine what return you’re hoping your campaigns will generate.  To calculate your ROAS you should use the following formula:

(Revenue from ads / Ad spend) X 100 = ROAS

Knowing your ROAS can help you quickly see what campaigns and ads are working, so you know how best to use your budget. However, ROAS can also be considered a vanity metric as it doesn’t necessarily contribute to your business long-term. This is why using a mixture of different reporting metrics can give you a more comprehensive view of your marketing ROI.

Marketing Efficiency Ratio (MER)

MER can help you see the impact your marketing is having on your business’s financial performance. By using the calculation below you can see the full relationship between your marketing investment and revenue.

Total revenue / Total advertising costs = MER

Implementing a new approach to marketing ROI

Now you have some new metrics to measure your marketing ROI, it’s time to start using them. Below is the process you should follow to do such a thing.

1. Define clear objectives – these should align with your business goals and can be for overall marketing activities and then per channel.
2. Identify your KPIs – choose the right metrics that will indicate how your marketing is performing.
3. Implement analytics and tracking – these will help you gather data that can influence your marketing and give you more insight into what is generating results.
4. Create a reporting system – this could be weekly, monthly, quarterly etc. and can include dashboards of charts and tables to show your results. It’s important to then communicate and discuss these reports with key stakeholders in your business.
5. Regularly review and adjust your strategy – use your reports and knowledge to continuously optimise your marketing and keep you on track to generating the ROI you’re hoping for.

Conclusion: Measuring for Sustainable Growth

So there you have it, a quick breakdown of how measuring marketing ROI has evolved and some key metrics to include in your reporting to give you a better understanding of what is or isn’t working. Remember, the metrics you choose to report on should be aligned with your overall business strategy and help your business to grow sustainably. If you’d like more support with understanding the performance of your marketing or perhaps you want a new strategy to generate greater ROI, then get in touch with our team of experts today.