What is a Good ROI?


by: Jessica Lane 2.6 min read

What is a Good ROI?

I was on the phone speaking to a potential new customer recently and he said to me “I just want a good ROI”.  I said, what do you consider a good ROI?  The person replied “ I don’t know””.
This answer may sound unusual; however, I find most businesses have not clarified what Return on Investment they are looking for when it comes to their marketing.
There are good reasons for this:

  • Return on investment relates to net profit and this may not be reflected in sales or sales enquiry history
  • There are too many variables and calculating net profit is hard to do
  • Not many people in your business have knowledge of your net margins
  • Working out and having the discipline to calculate which part of your marketing is delivering actual sales requires considerable time and effort
  • The timing and objectives of your marketing campaigns vary all the time
  • The historical ROI of your marketing can create different benchmarks for different markets or parts of your business
  • Everyone’s expectations of good ROI are different

Rather than getting caught up in all the possible challenges of measuring a good ROI; below are some simple principles that can help you make better marketing investment decisions.

 

Rule 1 – Don’t lose money. Know your break even within a set time frame. 
You can achieve 2% per year on your money with a bank deposit and no risk, so knowing your break even sales number is critical to implementing a good marketing strategy, marketing investment and getting a good return.

(A) New Campaign Investment Example – Untested Market or New Campaign
Measurement Period – 4 months
Total Marketing Spend – $10,000
Net Profit per Deal – $1,000  – Sale Price $10,000 per sale
Minimum Number of Deals = 12 deals @ $2000 profit
Result – $12,000 Net Profit. (Break Even + $2,000 profit.)

(B) Improving your future Marketing ROI
The process
Review annualised marketing spend
Calculate historical sales and net profit made from the spend
Establish ROI baseline & Time Period (generally 6 or 12 months)
Ie: 100K marketing budget,  200K net profit in additional sales
New ROI Goal 15% Improvement = 230K net profit from additional sales.
 
(C) Growing your Brand – can you measure ROI?
Not as easy, however, I suggest you separate this goal into a branding investment.
Ie: you want to grow your brand in market X or industry X
Measure ROI in 12 months
Ie: based on number of X customers or additional sales from that market in 12 months time

Other points to note:
Working out and locking down your ROI, really helps align you and your marketing team to a growth goal of success where everyone is winning.
Once you have worked out your minimum ROI goals, you then relate this back to

  • Number of sales
  • Number of leads

This process will really help you set minimum success goals, and then create stretch goals with team incentives without worrying about if you paying too much or rewarding the wrong outcomes.

If you want any help setting or re-setting your ROI on marketing, drop us a note and we would be happy to help.

Thanks for reading.

 

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