Return on Investment (ROI) measures the efficiency of an investment
It is the ratio of the investment’s net profit to the investment cost. In marketing, ROI is a measure of the profitability of a campaign. To calculate marketing ROI, you need to know the cost of the campaign and the revenue generated by it.
The formula for calculating marketing ROI is as follows:
ROI = (revenue – cost) / cost x 100%
For example, if a company spends £10,000 on a marketing campaign and generates £20,000 in revenue, the ROI would be 100%:
ROI = (20,000 – 10,000) / 10,000 x 100% = 100%
It’s important to note that ROI can be negative if the campaign cost more than the revenue it generated.
Top marketing metrics to track
Marketing teams need to measure the right metrics to evaluate the effectiveness of their campaigns. However, remember that not every metric will either be relevant or appropriate so choose these wisely rather than wasting time on unnecessary work. I’ve split up the top metrics into three categories, depending on the main objective of the marketing team: drive lead generation, drive brand awareness, or drive sales conversions.
Lead generation metrics
Lead generation is the process of attracting and converting potential customers into leads. The following metrics are critical for measuring the effectiveness of lead generation campaigns:
1. Cost per lead (CPL)
CPL is the amount of money a company spends to generate a single lead. The formula for calculating CPL is:
CPL = total cost of campaign / number of leads generated
The average CPL in the UK is around £35-£45, depending on the industry. However, the CPL can vary significantly depending on the type of campaign and the target audience.
Remember that the CPL can be affected by the quality of the leads generated. A high CPL may not be a problem if the leads are of high quality and have a high conversion rate. Therefore, you should also ensure that the very definition of what is regarded as a lead is understood across the business, particularly with the sales teams.
2. Conversion rate
The conversion rate is the percentage of leads that become customers. The formula for calculating conversion rate is:
Conversion Rate = (number of leads converted / number of leads generated) x 100%
Whatever anyone in Sales tells you, the average conversion rate in the UK is around 2.5%, depending on the industry.
Remember that a low conversion rate can indicate a problem with the quality of the leads generated, the product or service offered, or the sales process. By measuring this important metric, you can then review and optimise your activity and hopefully improve your conversion rate
3. Lead-to-customer rate
The lead-to-customer rate is the percentage of leads that become paying customers. The formula for calculating lead-to-customer rate is:
Lead-to-customer rate = (number of customers / number of leads generated) x 100%
The average lead-to-customer rate in the UK is around 20-25%.
The lead-to-customer rate can be affected by the quality of the leads generated, the product or service offered, and the sales process.
Brand awareness metrics
Brand awareness is the level of familiarity that consumers have with a brand. The following metrics are critical for measuring the effectiveness of brand awareness campaigns:
1. Reach
Reach is the number of people who see a marketing campaign. The formula for calculating reach is:
Reach = total audience / impressions
The average reach in the UK varies depending on the industry and the type of campaign.
Reach is a critical metric for brand awareness and will often feature in conversations about social media campaigns, but it doesn’t guarantee engagement or conversion.
2. Engagement rate
The engagement rate is the percentage of people who interact with a marketing campaign. The formula for calculating engagement rate is:
Engagement rate = (total engagements / total reach) x 100%
Engagement can include likes, comments, shares, and clicks.
The engagement rate is a good indicator of how effective a campaign is at capturing the attention of the target audience but, as with reach, it doesn’t necessarily guarantee conversion.
3. Net Promoter Score (NPS)
NPS is a measure of how likely a customer is to recommend a brand to others. It’s calculated by subtracting the percentage of detractors (people who wouldn’t recommend the brand) from the percentage of promoters (people who would recommend the brand). The formula for calculating NPS is:
NPS = % promoters – % detractors
The average NPS in the UK varies depending on the industry.
NPS is a good metric for measuring brand loyalty and customer satisfaction. However, it doesn’t necessarily measure brand awareness or reach.
Sales conversation metrics
Sales conversions are the number of leads that become paying customers. The following metrics are critical for measuring the effectiveness of sales conversion campaigns:
1. Conversion rate
The conversion rate is the percentage of leads that become paying customers. The formula for calculating conversion rate is:
Conversion rate = (number of customers / number of leads generated) x 100%
The average conversion rate in the UK is around 2.5%, depending on the industry.
Considerations: A low conversion rate can indicate a problem with the quality of the leads generated, the product or service offered, or the sales process.
2. Customer Acquisition Cost (CAC)
CAC is the amount of money a company spends to acquire a single customer. The formula for calculating CAC is:
CAC = total cost of sales and marketing / number of customers acquired
The average CAC in the UK varies depending on the industry and the type of campaign.
Considerations: A high CAC can indicate that the sales and marketing costs are too high or that the company needs to improve the efficiency of the sales and marketing process.
3. Customer Lifetime Value (CLV)
CLV is the amount of money a customer is expected to spend on a company’s products or services during their lifetime. The formula for calculating CLV is:
CLV = average value of a sale x number of repeat transactions x average retention time
The average CLV in the UK varies depending on the industry and the type of business.
CLV is an important metric for understanding the long-term value of a customer. A high CLV can indicate that a company is doing a good job of retaining customers and generating repeat business.
Conclusion
Measuring ROI is essential for any marketer who wants to succeed in today’s data-driven world. By tracking the right metrics and using the right tools, marketing teams can evaluate the effectiveness of their campaigns and make data-driven decisions. However, it’s important to remember that some metrics can be misleading or irrelevant to a marketing campaign’s success. By avoiding vanity metrics and focusing on the metrics that matter, marketing teams can drive growth and achieve their objectives.
