What is Marketing ROI and Why Is It Important?
Marketing ROI (Return on Investment) is calculated as the ratio of incremental contribution to sales from a marketing channel divided by the spend in that marketing channel.
Calculating marketing ROI is essential for strategic and successful marketing. First, every marketing team needs to be able to demonstrate that they are putting their budget to effective use. When aiming for marketing ROI, it's not just about growth; it's about proving that your marketing efforts are truly delivering and increasing sales. This means looking past vanity metrics such as "likes" and "shares" and focusing on what delivers an actual return on investment. ROI serves as data-driven evidence for your executives that your campaigns are boosting the company’s bottom line.
Secondly, ROI provides marketers with a clear understanding of how to allocate that budget by revealing which campaigns are performing well over time. What drives leads? What converts those leads into paying customers? By carefully tracking and analyzing your data, you gain clarity, avoid wasting budget on strategies that just aren't performing, and you can double down on whatever gets real results.
The same is true on a tactic level. If you are seeing the highest ROI in digital marketing, you want to drill down further and see which tactic has been most successful. Is it social media? Email marketing? Does it depend on the time of year? This positions you to scale your business sustainably with campaigns you know drive growth.
Lastly, knowing your current ROI gives you a measuring stick for future campaigns. As you make adjustments to your marketing strategy, you can continue to measure ROI, see what causes it to increase, and develop a nuanced plan for future growth.
The Basic Marketing ROI Formula
This is the most common formula used to evaluate the return on investment of media dollars.
Incremental sales = (media spend, raw sales, other parameters)
Once incremental sales are calculated for a tactic using one of the above techniques, the ROI for that tactic is calculated using the following formula.
ROI = (incremental sales) / (media spend)
or
Simple ROI = (revenue - media spend) / (media spend)
The Formula for Marketing ROI: Explained
Marketing ROI is a way of determining the effectiveness of money spent on marketing initiatives. Marketers want to understand the impact a marketing campaign has on company sales and to do so, they need to define a clear way of measuring that impact. If the dollars invested in a particular marketing campaign are not returning more dollars to the company in sales, that budget is best reallocated elsewhere.
The need to measure ROI reminds us that launching a marketing campaign is only the beginning. Successful marketing involves continually evaluating the performance of each campaign, determining its impact on profits, and using these insights to adjust and develop strategies for the future.
You will notice that Measured’s marketing ROI formula emphasizes the importance of incrementality. In order to accurately calculate marketing ROI, you need to understand which media investments are contributing to business growth and by how much. This means distinguishing between commonly used metrics like last-touch attribution (e.g., conversions where a prospective customer viewed a certain Facebook ad at some point) versus incremental attribution (e.g., conversions where the Facebook ad actually caused the conversion).
ROI vs. ROAS: what’s the difference?
Marketers love talking about ROI. But what they really mean is ROAS. Although they might seem similar, there’s a big difference. Knowing the difference can help you measure your marketing efforts more effectively.
ROI is a way to measure how much profit you make on an investment. It’s a percentage of your total investment. This makes it a good way to see how well your investments are performing overall.
But ROI has its limits. It’s not very good at telling you which specific marketing activities are generating the most revenue. That’s where ROAS comes in.
Return on Ad Spend (ROAS) is a marketing metric that measures the revenue generated by a specific ad campaign relative to the amount spent on that campaign. It’s usually expressed as a ratio. For example, a ROAS of 5:1 means that for every $1 spent on advertising, the campaign generated $5 in revenue. This makes it a valuable metric for marketers who want to optimize their campaigns for maximum profitability.
ROAS formula
The formula for ROAS, or “Return on Ad Spend”, is:
ROAS = Revenue / Media Spend
Before using the formulas for ROI or ROAS, the savvy marketer needs to establish a reliable way of determining which revenue dollars can be attributed to which marketing channels (which is the very problem the Measured platform was built to solve).
What are the Heavy Hitters of ROI?
The best marketing ROI is, by and large, digital. The four heavy hitters of the digital marketing arena are email marketing, search engine optimization (SEO) content marketing, pay-per-click (PPC) marketing, and social media marketing (SMM).
Email marketing tops the leaderboard due to its chameleon-esque ability to adapt to your desired campaign personalization. With the right software, companies in any industry can automate their cold outreach, product updates, customer education, and more. To determine the ROI of your email campaigns, focus on open and click-through rates. In 2024, marketers saw an average of 4200% ROI on email marketing!
SEO Content Marketing is a lower-cost channel that still provides great results and works as a long-term strategy. Content, when done right, builds brand trust and authority, positions you as a thought leader, and nurtures your audience over time.
According to the Content Marketing Institute, it's important to measure ROI in this arena from a long-term perspective and embrace non-financial gains, too. This can include:
- Website traffic growth (measured with analytics platforms)
- Audience engagement with your social channels
- Backlinks you earn because people find your content so valuable they link back to it
- Leads you capture through content upgrades within the content itself
While it can take up to 6 months to get an accurate picture of your content marketing ROI (remember, this is a long-term strategy), a 2,200% ROI is worth the investment. In addition to creating great content, ensuring content ranks highly for keywords your audience is searching for is paramount.
Pay-per-click (PPC) Marketing is similar to SEO marketing in the sense that marketers must choose high-value search terms in order for it to be successful. However, unlike SEO marketing, it is not a long-term investment. Once the ad is turned off, the campaign ends.
To calculate your PPC campaign's ROI, you can modify the basic formula slightly:
ROI = ((Revenue - Cost of Campaign) / Cost of Campaign) * 100
So, if your campaign generated $10,000 in sales while you spent $2,000, you'd have a robust 400% return. To get really granular with PPC analytics, consider these factors:
- Cost per conversion (how much it costs for a click that turns into a meaningful action)
- Conversion rates for different keywords and demographics
- A/B testing different versions of your ad copy to squeeze out the highest engagement and return
Social Media Marketing (SMM) is a broad term referring to many different channels, making it difficult to pinpoint a general ROI. While Youtube offers the highest ROI, with its high reach and low barrier to entry, social media also expands your brand exposure through partnerships like affiliate marketing. Affiliate marketing spend is exceeding $10 billion in the U.S. for the first time in 2024, making it an option worth exploring.
Common Challenges in Measuring Marketing ROI
While any marketer would love a single golden standard to tell them if a plan is “working,” the truth is that all marketing tactics are different, and the effectiveness of your marketing strategy will depend on factors like your industry, your goals, and your company's needs.
For instance, a major brand might intentionally focus on consumer awareness, market share, or even social media engagement, and because of this, they may decide to move ahead with marketing campaigns that yield a negative ROI. Other companies may need to know that each marketing strategy is increasing sales.
Ultimately, ROI largely depends on how each company wants to define the financial impact of marketing performance. Still, marketers need a general benchmark to operate by, which brings us to our next section.
What is Considered a Good Marketing ROI?
A good ROI in business will vary depending on your industry, channels, and strategy. The broadest possible rule of thumb is that you are looking to make more than a dollar for every dollar you spend. Many marketing analysts suggest that a good marketing ROI should be at least a 5:1 ratio. An exceptional ROI would be a 10:1 ratio, and a poor ROI would be a 2:1 ratio or lower.
Since your target ROI will vary based on the marketing tactic, you can set a baseline by comparing the return on past marketing tactics to your current sales to determine your starting ROI. Having this point of comparison is one of the benefits of continually measuring marketing ROI across each tactic, campaign, and channel.
Marketers should note that it will be trickier to calculate marketing ROI for certain tactics than for others. Content marketing ROI may be difficult to track if the blogs, podcasts, or videos you post do not directly link to the purchase of your product or service. Conversely, email marketing ROI or even affiliate marketing ROI may be easier to track if the email or advertisement on an affiliate’s website links directly to one of your landing pages.
Average ROI in Digital Marketing: What to Expect
The average ROI in digital marketing can be difficult to measure since each company must define “success” for their marketing strategy based on their own niche and needs. However, statistics show that many digital marketers will shoot for a 5:1 ratio—or a profit of $5 for every $1 spent.
Once again, the ROI will vary based on the marketing tactic. Email marketing is often cited as the most profitable, with companies estimating that the average return is anywhere from 675% to a whopping 4200% (or $42 for every $1 spent). These impressive numbers would encourage most marketers to set a much higher ROI target for their email campaigns. But why would there be such a large difference in these ROI estimates? The measurement process is key here. Companies looking to prove the impact of a certain tactic may fail to introduce nuance into their measurements, perhaps using selective or conglomerated data instead of evaluating the incremental contribution of each tactic, campaign, or channel.
How to improve marketing ROI: Best Practices
Define Clear Goals and Align Your Strategies
Your ROI marketing needs crystal clear objectives to provide direction. Start by asking, what's your ultimate marketing "North Star?" Is it increasing market share by a certain percentage? Hitting a revenue target within a set timeframe? Driving a set number of qualified leads?
Once this is determined, ensure that all strategies you implement have clear, measurable benchmarks for what success looks like. Also, ensure you have systems in place to track progress along the way.
Leverage Data-Driven Insights
In today's data-saturated world, knowledge is power. Leverage powerful marketing analytics tools that offer deep insights into customer behavior. Ask yourself these questions:
- Which blog posts are readers engaging with?
- What email subject lines result in opens?
- Which landing pages have low bounce rates?
Understanding these behavioral patterns enables you to hyper-personalize your messaging, refine targeting for your ad campaigns, and continuously tweak landing pages and offers for better performance. You'll be able to justify marketing spend when you understand where customers are coming from and how they behave on your site.
Test and Optimize for Continuous Improvement
There's no "one size fits all" - what works for one business might fall flat for another. Embrace testing as your secret weapon for constant refinement.
A/B test your landing page headlines, your email subject lines, and even your ad copy on social platforms. This is about getting granular; sometimes, the tiniest of changes can yield a major boost in your conversion rates and overall ROI. This analytical mindset empowers you to continuously iterate, optimize, and outperform.
Measured for Marketing ROI Success
Mastering ROI marketing is an ongoing journey, but by prioritizing data analysis, understanding what drives conversions for your business, and embracing experimentation, you can refine your approach for sustained success.
The Measured marketing platform was created to provide marketers with reliable cross-channel media measurement. Measured’s focus on incrementality enables more accurate ROI calculations and more effective strategies for optimizing your marketing spend.
As your grasp of ROI marketing grows, you equip your business to adapt, evolve, and thrive in the ever-competitive market. Schedule a demo today to see how the Measured platform can help understand what’s truly driving your marketing ROI.