Getting a good return on investment, or ROI, is what running a successful business is all about. ROI, at the end of the day, means one thing: Are you making money when you spend it? This post provides key metrics to help you identify whether you’re allocating your resources wisely.
Understanding Marketing ROI
Calculating ROI is simple: It’s the money you gain from making an investment, minus the cost of that investment.
ROI becomes a bit more difficult to calculate when financing enters the picture. Taking out a loan to finance marketing campaigns is a common, if sometimes risky, tactic. It requires you to do the math and decide whether the cost of that loan is worth the return you’ll get.
There are many different loan options available to business owners, and they all come with varying APRs, repayment terms, and other fees that can alter the overall ROI of a loan.
Luckily, one of the benefits of marketing campaigns in the digital age is that there are few to no minimum spending amounts. If you’re looking to drum up excitement for a new location, or holiday sales, you can dole out a little on social media ads, email marketing campaigns, or SEO, and get quick results as to whether the return was worth the investment.
6 Metrics to Help Gauge Your Marketing ROI
Once you get a sense of the ROI for your efforts, you can consider the potential benefits of scaling up and spending more on what worked. With that in mind, look at these metrics to measure your performance before you spend big enough that outside funding is required.
1. Cost Per Lead
Cost per lead (CPL) is the total amount you spend on a new marketing campaign, divided by the number of new leads (people or organizations who express interest in what you’re selling) your company receives as a result.
Of course, a lead means something different to every business. Is everyone who signs up for your newsletter a lead, or are they a lead only when they click through the links in your newsletter to view the sales page? It’s up to your company to set the definition of a lead and decide whether your investment in garnering them is worth it.
2. Cost Per Acquisition
CPA is similar to CPL, with one key difference: An acquisition is more than a lead—it’s a verified sale. While measuring leads is a valuable metric (even when they don’t all turn into sales), acquisitions are what turn your marketing efforts into actual dollars. Some companies put CPL under the same umbrella as CPA, since a lead is also an acquisition.
3. Customer Lifetime Value
Also known as CLTV or just LTV, the lifetime value of a customer is a prediction of the total revenue a business can expect from a single acquisition.
Measuring LTV in relation to the cost per acquisition shows companies how long it will take to recoup their investment in acquiring that customer—not just your marketing costs, but your sales costs as well.
Here’s why this is important: It costs way more to acquire a new customer than to retain an existing one—anywhere from 5 to 25 times more (Source: HBR). If the customers you’re acquiring now are predicted to stick around and keep spending with your company, they’re immensely more valuable than those you’d have to go back out and find.
4. Cost Per Click or Cost Per Impression
When you run online advertisements on platforms like Facebook, Google, or LinkedIn, you pay in one of two ways: the cost per click or cost per (thousand) impression(s). With CPC, you only pay the platform when a user clicks on your ad and is taken to your landing page. With CPM, your ad is served to a set number of people (however many you buy) and you pay whether they click or not.
There are pros and cons to both methods. With CPC (pay-per-click) campaigns, you are only paying for people who appear to engage with your ad and show intent for buying your product. With CPM, you are paying more for awareness than intent.
5. Unique Monthly Visitors
Measuring brand awareness is difficult, but one helpful metric is the number of people who visit your website each month. That implies that people have heard of your business—perhaps by word-of-mouth, or through ad impressions—and want to see what you’re all about. These people may eventually become leads, acquisitions, and lifetime customers.
6. Click-Through Rate
Whether a customer “clicks through” to your site means something different depending on where you’re spending your marketing budget. It might be clicks through your email newsletter, clicks through your social media channels, or through links on other websites—which can increase with the more blog content you publish.
How compelled people are to read or learn more about you—or to buy from you—says a lot about how much traction your brand is getting online.
*** The price for major marketing campaigns can run in the thousands, if not hundreds of thousands, of dollars. Are they worth the payoff? That’s where calculating ROI comes into play.
Remember that these metrics don’t mean much if you don’t get conversions. Lenders will want you to prove you have a plan for paying them back, which means you should have confidence in the tests you’ve run and the numbers you have before you apply.