Measuring Marketing ROI Over Different Time Frames

Measure Marketing ROI

Despite becoming increasingly digital and data-driven, marketers still struggle more than their counterparts in other corporate functions to communicate the business impact of their work.

Measuring marketing ROI is important to determine the level of success in a campaign or plan. Performance metrics like ROI should be regularly tracked either on a monthly or quarterly basis to track whether goals are being met. Some experienced and larger teams may even meet weekly to make sure there’s alignment across all departments of the marketing org.

We’ve discussed the importance of focusing on marketing metrics that matter – and calculating ROI is perhaps one of the most important marketing metrics. In this article, we’ll review the MROI formula, while taking a closer look at the impact of timing on marketing ROI.

Article Contents:

Here are the sections of this article:

• What is ROI in marketing?
• How is marketing calculated?
• How timeframes affect measuring marketing ROI
• What is considered a good marketing ROI?
• A checklist for measuring MROI

What is ROI in Marketing?

The definition of marketing return on investment (MROI) is exactly how it sounds: the attribution of profit and revenue growth to marketing plans and campaigns.

Why is ROI so Important in Marketing?

Simply put, marketing ROI is the most effective way to measure the effectiveness of marketing efforts. Done right, it enables marketers to consistently measure and compare the performance of diverse campaigns executed across multiple channels. This, in turn, can help your team determine which campaigns work best based on budget, audience and if you are directing your marketing efforts in the right place.

Here are some other reasons why marketing ROI is important to measure:

• Teams use marketing ROI to justify their marketing budget to leadership
• Helps you decide how to allocate marketing budget on different campaigns, channels and efforts
• Generates accountability for team members
• Helps you stay focused on your marketing goals
• Provides stakeholders with a bottom-line view of your marketing efforts

How is Marketing ROI Calculated?

Now that you understand what marketing ROI means, here is the formula to calculate marketing return on investment:

MROI Formula

As a refresher, the formula for the marketing ROI equation: MROI = (Return – Investment)/Investment

Return

Our recommendation is to use the marketing ROI formula to measure return in terms of contribution margin. If you can’t, use gross margin, or – slightly worse – revenue. Here’s why:

• Imagine two companies, with each spending $20,000 on a campaign that generates $100,000 of revenue. If we measure ROI at the revenue level, the ROI’s look identical: (100-20)/20 = 4.0
• If one company has a contribution margin of 60% on its product ($60,000 margin on the $100K return) and one has a contribution margin of 30% ($30,000 margin on the $100K return) it becomes clear that one company’s marketing ROI is four times better: (60-20)/20 = 2.0 vs (30-20)/20 = 0.5. 

Investment

In regards to marketing ROI, investment means the complete campaign investment, which is easy to measure once the campaign is finished. While you’re executing the campaign, however, it’s useful to know which expenses to include, and how they will affect your results. Options are outlined in the following sections.

Which measures of investment make the most sense for you depends on the campaign type, your team culture, and the questions you’re trying to answer.

Know your target ROI

We strongly recommend calculating your target ROI. It’s a good practice to have a sense of your total campaign budget (you can use our marketing budget management tool) and the value of your total outcomes before the campaign begins. That way you can determine if you are set up for success.

When you consider your budget and the value of the campaign outcomes, if they don’t yield a compelling ROI, you should go back to the drawing board and take a different approach. You can’t say you have a successful campaign if it has delivered a poor ROI.

Best Practices of Measuring Marketing ROI

When it comes to marketing, measuring your ROI can seem tricky. Be sure to follow these best practices to include when calculating ROI of your marketing efforts:

Marketing expenses:

When measuring marketing ROI, be sure to factor in all expenses.

• Tools & softwares: Track the total cost of supplies, services, and software needed to create the campaign.
• Promotional costs: Did you spend anything for promotion? Consider social media or search engine ad costs, or other promotion tactics used, and the amount spent.

Hours spent:

In addition to marketing expenses, make sure you include the costs incurred on hours spent on a marketing plan.

• Time: How much time did it take to create the marketing materials?
• Salary: What are the salaries of the employees who work on a marketing plan or campaign.
• Agencies & freelancers: how much time and money are spent from outside resources?

Tracking:

Keep in mind these best practices for tracking your return on investment as your marketing plan gets carried out:

• Page analytics: Use a tracking URL to determine if your content is driving traffic key pages on your website.
• Marketing touch-points: How many channels does your plan or campaign involve? Are you measuring a campaign that spans multiple channels or just one? Be sure you pick an attribution model for your omni-channel marketing plans and campaigns.
• Set Benchmarks: benchmarking helps set the right expectations. To set an attainable benchmark, use data from past marketing campaigns, or industry data.
• Marketing Goals: How do the marketing goals you are measuring relate to sales numbers? Make sure your marketing goals align with the goals of your business.

Challenges with Measuring Marketing ROI

• Attribution – Measuring ROI across marketing channels can be challenging. Most marketing leads come in through multiple touch points or marketing channels before converting. To determine each channel’s effectiveness, the right attribution model must be chosen to best analyze which marketing channels play a part of an online conversion. Learn more about common marketing attribution models, including first-click, last-click, linear.
• Key performance indicators (KPIs) – Key performance indicators let you know how well or poorly your campaigns are performing, and correlate with marketing ROI. Choosing the right KPIs are important for determining the success of your marketing plans and campaigns. Avoid using vanity metrics that don’t offer valuable insights to marketing performance.
• Marketing and Sales – Marketing relies on sales to close deals. After a lead becomes an MQL (marketing qualified lead) they are often sent over to the sales team. When marketing and sales teams align themselves on a clear definition of an MQL and SQL in regards to their organization, then marketing ROI will improve.
• Timeframes – One of the biggest challenges that can affect how we measure ROI is the timeframe we use. Read more on this in the next section.

How Timeframes Affect Marketing ROI Measurements

Though the formula remains the same, timeframes can affect the way we measure ROI. There are a few possible ways you can measure marketing ROI over time frames:

1. Snapshot – looks at ROI present point in time, recurring weekly, monthly, quarterly, etc
2. Cumulative to date – considers all metrics and expenses up until the present point in time
3. Cumulative with future expenses included  – considers closed expenses and committed future expenses

Snapshot 

Sometimes it is useful to calculate ROI for a specific time frame that is shorter than the entire campaign. This may make sense in the context of an evergreen digital campaign, where you want to track marketing ROI performance in a month-by-month timeframe.

This measure of ROI doesn’t communicate how the total campaign is doing, but it allows for easy month-by-month comparisons over relative performance, which is valuable for many.

The table below illustrates ROI independently each month. Leads have a mean contribution margin of $90 in this example:

Cumulative, Expenses to Date

Other times, you may want to track the cumulative ROI of a campaign.

If investments precede outcomes by a long timeframe, then you should plan on having a poor ROI, to begin with, but as the metrics start to pour in after the spending has stopped, the ROI trajectory will improve quickly.

Example 1: Evergreen Digital Campaign

An evergreen digital marketing campaign looks like this in a cumulative view:

Example 2: Product Launch

Cumulative ROI for a product launch can look wildly different.

In this example, there’s a small number of pre-orders in March, with the launch date at the end of April. There’s no spending in May, and the vast majority of the results occur in May, vaulting the ROI upwards.

Cumulative, Future Expenses Included

In all instances, it is worth knowing what your current, total campaign ROI is. 

In other words, if you stopped the campaign today, with the marketing metrics that you have, 100% of your closed expenses, and committed future expenses, what would the ROI be? This may be useful for campaigns that have significant expenses locked in over future time periods.

This isn’t always the most intuitive point, but the notion of committed future expenses is critical to MROI calculations. If you stop a campaign early, and it has future expenses that you still have to pay, those must be included when measuring MROI using this method. 

Example: TV Advertising Campaign

Imagine if you’ve made a significant media buy for a TV advertising campaign and then don’t launch. You still owe the money for the media buy and that has to be included in the campaign ROI calculation.

The marketing ROI calculated just including expenses incurred through the end of May:

Now imagine that as of February, there was an additional $20K of expenses contractually committed across June and July. The real MROI measured is updated as follows:

This is the most accurate representation of where things stand if the marketing campaign were to stop in May.

Your Checklist for Measuring MROI

Even with something as apparently simple as the MROI equation, there are numerous factors to consider for your marketing plan.

Here’s a marketing ROI measurement checklist to determine which makes the most sense for you (using more than one is okay):

Be Clear About What’s Being Measured

Always be clear that measuring your return in revenue, gross margin, and contribution margin are all valid, but each will change the definition of what a good marketing ROI is.

Plot Expected Metric Milestones

Plot out your expected metric achievement in milestones. This helps you understand and communicate whether a marketing campaign is behind schedule, or whether the metrics are just coming in in the future. In either case, this will enable your team to have a clear view on campaign success. 

Use MROI Snapshot Measurements

If you want to track monthly (or quarterly, or weekly) performance independently, then MROI snapshot measurements may be useful. Long-term, repetitive campaigns – particularly those with constant investment levels – lend themselves to this kind of measurement. But remember, this measure will not tell you the total campaign ROI.

Marketing ROI with Cumulative Return

MROI measured with the cumulative return but only to-date expenses may give you a good sense of how the campaign is going, and whether you are on track.

Be mindful that the ROI may drop if you end the campaign early, as you will have to factor in committed expenses in the future (for example, you may have a non-refundable contract related to the campaign that has not been invoiced yet – if you cancel the campaign, that contract still needs to be paid).

Keep Track of Cumulative Metrics

To analyze the truest MROI measure, keep a track of cumulative metrics and achievement and all committed expenses, including future commitments.

This won’t always give you the most encouraging snapshot view of ROI, but it is realistic, and if your milestones are planned correctly, you will know you are on the correct course to achieve the right outcome in the end.

Using Planful to Improve Marketing ROI

Learn more about Planful’s marketing ROI tracking tool, and other features our marketing planning software offers marketers, CMOs, and marketing teams.