As a small or medium sized business owner, every choice counts when it comes to time or money investments. It’s important to have a system to evaluate the benefits against the costs.
Calculating returns on marketing campaigns may seem like a headache of numbers and data that never actually seems to equal real results. While large companies have the luxury of applying complicated statistical configurations to huge quantities of data in order to make small tweaks that lead to millions of dollars in profit, that’s not likely something you’ll be doing in your spare time.
Simple Equation
The good news is that there is a simpler, more effective formula that can be used to measure successful marketing. To utilize this formula, evaluate the revenue to cost ratio. Take the total revenue driven by a particular marketing campaign and divide by the cost it took to run. It may seem too easy, but if used properly it is the perfect tool to assess your marketing decisions and grow your business.
Return on Investments
How would this metric work? Here’s an example:
A company runs a text message campaign to members of a loyalty program; it costs the company six dollars to text a few hundred current customers. As a result of that text, four percent of the recipients come to the store and spend a total of $110. The merchant makes in sales 18x what it cost to send the texts.
Most companies consider 5x a decent return, with 10x the return a huge success. For only six dollars this particular merchant received about $80 in gross profit after their initial costs! That is a great result by any standards, and particularly for businesses that must be very strategic about their marketing choices.
Put any of the following advertising methods to the test:
- Text messaging campaigns
- Facebook advertising
- Email marketing
- Newspaper articles
- Coupons sent by mail
With the revenue to cost ratio formula you can easily evaluate how much you would need to make based on an initial cost. You can choose to try each method once to see if it passes the 5x or 10x test. By expanding your loyalty program, membership, email list or Facebook followers, you improve upon your visibility and increase your odds in any of the marketing methods.
Most business owners understand the true value behind any type of marketing campaign, but in order to see whether you’re running successful or flailing campaigns, you need measurability. It’s essential to know where you’re putting your money and how that translates into positive or negative return on investment.
