Ask anyone about marketing and they will often tell you that it is an expense or a non-revenue generating cost center. While in some respects this definition may be true, marketers can bring true value to the table if they are able to monitor and track the return on investment (ROI) of marketing activities. Essentially the formula looks like this:
Simple enough right? Absolutely! The idea behind it is that you are calculating the amount of return or profit that you are making on a particular marketing activity after the cost. Now, while it may sound simple enough, the most accurate method of calculating ROI is to have a clear picture of net profit. In a perfect world you will want to know exactly the cost it takes to sell your products or services. If you are measuring this for a business that tracks net profit well, you are in luck. But, I can tell you from experience that this number is not always easy to obtain. It may be because your organization does not track costs down to a net profit. OR it may be because you are a marketer and may not have access to the information. The bottom line is that ROI is a metric and a method to benchmark. If you can get to a true ROI measurement with accurate net profit tracking, you are in a marketer’s dreamworld. I actually have that ability with my current marketing role, but for a lot of marketers and business owners, that isn’t the case.
I can tell you I have also managed marketing in businesses where I either did not have access or the organization did not track the information. In this case, this is where I would like to share a real world practical way of making this metric meaningful. Metrics are a way to monitor, adjust, and plan for your business activities. Whether you are marketing or managing some other part of the business, it is important to remember that the key is to consistently measure whatever return number that may be. For some, it may be gross sales. Others it may be marketing costs solely. Or in my current example, it is a true net profit incorporating not only the sale, but the profit (meaning all overhead utilized). Any way you cut it, it is important to measure something and track it consistently over time. Why? Mainly because ROI should be a tool to show you what is effective and what needs adjustment. Many would argue that there is a right or a wrong. I would beg to differ. I believe that the activity of monitoring (regardless of which method or which number you use) provides you the ability to see what is working and what is not. That is, after all, what any business metrics should be used to accomplish.
So measure your marketing activities, watch to see what trends materialize and make adjustments to your plan as you go along. You do this and you will see marketing efforts that produce real results regardless of how you calculated the metric. Marketing is an art AND a science, so use it in that way to achieve the growth goals you have for your organization.