How To Calculate Your Small Business’s Marketing ROI

Investing in marketing is a great way to grow your small business, but how can you tell if what you are doing is working and turning a profit? This is where return on investment, or ROI, comes in.

What is ROI?

Return on investment is the amount of money you make from a marketing campaign or initiative, after you account for the costs of your initiative. This is extremely important to calculate because it will help you decide if this marketing campaign is worth the money or investment. Understanding your ROI can help you make educated marketing decisions, and it could help you not only save money, but make more!

 

Why ROI is important:

As a small business owner, your main goal is to make money. Marketing efforts will hopefully help you bring in more customers so that you can make more money – but you cannot just assume that that is what is happening.

Calculating ROI for your marketing initiatives will help keep you on the right track of what is working to promote your business. If something is not working, you do not want to keep spending money on it! This will help you be sure that your campaigns are good investments and worth your time and money.

 

How is ROI calculated?

ROI is calculated as a percentage. It is found by dividing net profit by the cost of the initiative, and then multiplying by 100 to get a percentage. Let’s talk about the logic behind the math.

As a small business, you want to know the amount of money your initiative brought in. However, you have to account for the expenses the initiative has accrued. This is why you subtract expenses from the profit. Because we want to know how effective the initiative is and we want a percentage, we then need to divide the net profit by expenses. 

 

Can ROI be negative?

Yes. A negative ROI means that your marketing initiative is costing you more money than it is bringing in. If you are dealing with a negative number, you want to rethink your marketing campaign. It might be that your campaign needs tweaking, or you may want to drop that initiative all together and find a different marketing strategy. 

 

What is a good ROI?

Any positive ROI is good. However, there is no exact (positive) number that is right or wrong. A common suggestion is 15-30%, but it is really up to you and what you are comfortable with as a small business owner.

If you feel as though a marketing initiative should have a higher ROI, consider tweaking your campaign. Also remember that marketing is a long term game. The more someone interacts with your brand or business, the more likely they are to make a purchase from you.

 

Do I always need to calculate ROI?

It is important to talk about the fact that not all marketing initiatives or campaigns will have a simple way of calculating ROI. ROI may not even be important, depending on your marketing goals.

Example: If your marketing campaigns are focusing on building brand awareness, you likely will not be looking at ROI. Your focus may instead be on new visitors to your website, new follower count, or new email subscribers. It could be that this campaign is converting some sales, but that’s not what your main focus is.  

This does not mean you do not need to review and collect data for all of your marketing initiatives. Even if it is hard to determine whether a marketing campaign is working or not, you need to try. A guess is not enough. Get creative with the way you track data or how you calculate the success of your marketing efforts. Creating special landing pages or using specific phone numbers can help you keep track of campaign interactions. 

ROI is your friend. It will help you better understand the efficacy of your marketing efforts, and help you make tough decisions. Should I continue investing in this marketing campaign or try something new? Calculating ROI can help you grow your small business! And so can The Seasoned Marketer. Check out our resources here!