Whether you work at a book store, a coffee shop, a restaurant, or any other kind of business, at one time or another, you’ve probably asked, “How can I tell if the money I’m spending on marketing is actually driving an increase in sales?”
That’s a common question. After all, if you spend $1.00 on marketing, it should generate more than $1.00 in sales, right? The problem is that many people are confused about how to calculate the return on investment (ROI) of a marketing campaign.
The good news is it’s not all that hard to calculate the ROI of a marketing campaign. All you have to know is some basic math.
With all that in mind, let’s take a look at a few key things you should know in order to figure out whether your last marketing campaign generated a positive ROI.
Laying the foundation for a return on your investment
Broadly speaking, there are only two different kinds of marketing campaigns most businesses run. The first is a branding campaign, and the second is a direct response campaign.
A branding campaign is one that builds awareness for your business, but doesn’t necessarily have a specific mechanism to track the success or failure of the campaign.
For example, if you’ve ever run a radio, TV, or outdoor campaign, the odds are you were probably running a branding campaign because there wasn’t a coupon tied to the radio, TV, or outdoor board. In other words, there was no mechanism in place to directly tie the campaign to a sale at your store. (That’s not to say branding campaigns aren’t valuable – they are. It’s just to say that it’s harder to track specific increases in sales directly back to a branding campaign.)
An alternative to a branding campaign is a direct response campaign. Direct response campaigns use print, direct mail, flyers, or digital ads (for example, Facebook, ADWORDS, banner ads). They typically have a tracking mechanism in the form of a coupon or a discount code. When someone redeems the coupon, you’re able to track the redemption back to the campaign you’re running, so the calculation is much easier.
Now that we’ve covered the difference between a branding campaign and a direct response campaign, let’s take things a step further and talk about how to measure the specific results.
Taking your ROI calculation to the next level
Of course, the easiest way to do an ROI calculation is to determine how much you spent running the campaign and then compare it to the amount of revenue generated by the campaign.
As mentioned, this is much simpler to do when you’re doing a direct response campaign that uses a coupon or discount code. If you spent $1,000 on the campaign, and generated at least $1,001 in revenue, then the campaign paid for itself. Of course, ideally you would want your campaign to generate $2,000 or $3,000 in incremental revenue, but anything above $1,000 can be seen as a success.
Here’s a twist: what happens if you spent $1,000 and it only generated $900 in revenue? You might think it was a waste of time, but the truth is that a campaign that loses money might still be an effective campaign.
How? Because for every 10 people who come in as a result of the campaign, 2 or 3 of them are going to be entirely new customers. That means you’ve increased your customer base, which is sort of like stocking a pond with extra fish – you’ve just made it easier to catch one.
Out of those 2 or 3 new customers, you can count on at least 1 of them coming back for more visits in the future. When they come back in the future, they spend more money. The added value of a returning visit is often overlooked when people calculate the success or failure of their marketing campaigns.
But wait, it gets even better. Some of the people who visit your store as a result of your campaign will refer their friends to your business. In other words, after they visit your store, they’re going to mention it to a friend or family member who might also visit your store.
That’s called referral value, and it’s a great way to understand why spending $1,000 in marketing that only generated $900 in revenue initially can actually be seen as a success in the long run.
How to get more customers to come back more frequently
If you’re like most business owners, when a customer walks through your door, your primary focus is on getting that customer to feel as welcome as possible and to buy something in the process.
But what if you could get a keen understanding of the consumers in your area BEFORE they entered the store? Would that help you do a better job in your product selection or marketing efforts?
Of course it would.
The good news is that there are foot traffic tools available that can help you learn more about your customers and prospects before they even enter the store.
In the meantime, feel free to use some of the information we shared in this blog post to calculate whether or not your marketing campaign is generating a positive ROI. After all, there’s no point in running a campaign if it’s not going to help you grow your business, right?
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Blog originally published on SAP Digital.