The how and why of marketing ROI
You’ve probably heard the term thrown around a lot: ROI. It stands for Return on Investment, and it’s calculated by measuring the cost of an action versus the revenue it generates. But how do you really know if your marketing efforts are successful? It’s not always easy to calculate but getting an accurate read on your revenue ratios is the best path to understanding your marketing ROI.
Know your revenue ratios*
*It’s not possible to see the direct impact of every marketing action you launch, so we recommend adding a big picture approach when trying to determine marketing ROI. To do this, look at your overall business development pipeline as shown in the graphic.
Starting at the top, you need to get an idea of how visible you are in the market. Next, out of those brand impressions, how many people acted on their curiosity? This is measured by traffic. From traffic you created, how many of them took an action and began to invest time into understanding your expertise and/or your offering? We call these conversions because these actions show that you converted interest into action. There are different types of conversions and primarily they fall into two camps. One action involves a prospect researching a need; thus, they sign up for a webinar or download a piece of content as an example. These are called “marketing qualified leads” or MQLs.
When MQLs are nurtured to the point where interest triggers a conversation with a salesperson who validates they are able and interested in making a purchase, they become a “Sales Qualified Lead” or an SQL. And of course, we want as many SQLs as possible to become customers. Once you have identified the key metrics for each level of your funnel, take a look at each ratio with a wide lens.
First, where are people “falling out” of your pipeline? Examine what the prospect experience is and where you can improve. Also, you’ll want to take a look at the quality of each metric. You might have extremely high visibility and traffic, but almost no conversions. It’s very possible that you’re in front of the wrong people.
Viewing your total business development pipeline (not just your sales qualified pipeline) is the key to understanding marketing ROI. Simply, the goal is to fill your pipeline with the right people and keep as many as possible from falling out at each level. You want to maximize the ratios between each level. Once you know your revenue ratios, you can weigh your marketing successes. What is the ideal ratio of revenue to marketing dollars spent? An ideal ratio for many companies would be 5:1, or that for every $1 you spend on marketing, it generates $5 in business. Higher is always better, but 5 to 1 is a perfectly fine benchmark to reach.
Once you have a firm idea of which leading indicators need improvement and where the leaks are in your pipeline, you can prioritize those areas in your marketing budget. For example, if your pipeline is relatively effective, but you don’t have enough visibility, you will need to spend money on it. Make sure your budget aligns with the areas your want to optimize.
But what about if your brand is you—a thought leader in your industry. Is it time to look at LinkedIn or YouTube to see what kind of audience is waiting for you there?
A typical marketing budget makes up roughly 10% of a company’s gross revenue. Newer companies often try to scale up faster, spending about 20% of their budget.
Here are a few things that will help you determine your digital marketing goals:
- Market position
- Annual revenue target
- Average sale per customer
- Number of sales needed
- Cost-per-marketing qualified lead (MQL)
Once you have this information locked down, you can determine where to spend your marketing dollars:
- Strategy or branding
- Website optimization to convert more visitors
- Content marketing
- Digital marketing
- Sales & marketing alignment
Learn how to slice up your B2B marketing budget pie and check out a post we did covering this in detail.
Let’s go deep
Hitting that ideal 5 to 1 revenue ratio is within your grasp. The process might seem out of reach but learning how is not hard, either. Schedule a discovery call with us to learn more about the how and why of your ROI in digital marketing strategy.
Blender is a full-service B2B marketing agency focused on accelerating growth. By building a smarter marketing mix that is aligned to your sales cycle, we maximize your ROI. Need help working through your marketing metrics? Let’s talk.