• Jack

How to Determine Marketing ROI for a Small Business

Marketing for small businesses needs to be thought through. We don't have a $10M marketing budget like corporations, so everything that we do should be creating some sort of value, and the activities that aren't producing should be changed. Probably quickly too.

So let's put some numbers to different marketing activities! What better way to see a ranking of your efforts and determine which ones work great and which ones need to be changed?

What numbers go into a Marketing ROI?

There are a few different ones... maybe a couple more than you'd expect.

Let's start with the easy ones - dollars in vs dollars out.

Dollars in... aka Revenue

  • The amount of revenue that was directly generated from a marketing activity

  • It's worthwhile to keep track of the number of customers too - that way you can figure out average ticket by marketing channel

Dollars out... aka Expenses

  • The amount of money you had to invest into the marketing activity.

  • Ex. Paying for ads, paying for SEO services, networking groups member fees, etc.

That's the easy part (assuming you have decent records in QuickBooks and your CRM and can get the data out of it).

However, rough numbers are okay to get started because if one comes out to 21% ROI and another comes out to 24% ROI, you can say that they are pretty similar. You'll still like them more than the 3% one and less than the 60% one.

With that being said, exact numbers are always going to be ideal, but that can be a bit more difficult/time consuming to do unless you have an analyst that can automate the data flow and build it to be self-sustaining (which is very doable, but you might not need it to get a rough picture).

How about all the "Other stuff" that happens with Marketing?

Everything you do in marketing should also increase your brand value. Posting on LinkedIn might not get you a client, but you will stay top of mind with people. There is value in that, we just need to quantify it.

Brand Value

Obviously LinkedIn posts aren't equal to a new client, but it's worth some fraction of your revenue.

The example I like is a Geico billboard...

You see them all over the place and some of them are as simple as the gecko and a "15%" on it. Did that make you buy insurance through them? No, probably not, but you certainly saw that, then thought of their slogan and other ads you've seen from them. Very top of mind. Tough to quantify, but we can agree that it's worth "something".

The conclusion of quantifying Brand Value from marketing activities is to say that it's safe to put a small fraction of your revenue as the value of these "brand value" pieces of marketing.

This would mean: Total Marketing Gain = Revenue gained + Brand Value gained

Time Invested

On the expense side, it's easy to say the classic "if I get one sale from this $200 networking group, it'll be paying for itself!"

While that's fair from a dollars in dollars out perspective… think about your time. If you have to be at that meeting for 1 hour a week and your hourly rate is $100, then you spend $5,200/year plus the $200 you paid to be a part of the group. Hopefully that one sale you get is a really big sale…

So the Total Expenses = Direct Expenses + Hours*Hourly Rate

What's the formula for Marketing ROI?

Once you have that more full picture of your different marketing efforts, you can get the true ROI for your business! The ROI is really just a comparison of the total marketing gain and total expenses.

(Total Marketing Gain - Total Expenses) / Total Expenses = ROI

Why does this matter?

Once that is figured out, you can clearly see the ranking of your different marketing activities, see which ones are the all-stars and which ones might need to switched out of, or at least changed! Maybe this leads you to invest more in the all-start SEO channel and leave the networking group that isn't cutting it enough for you.

If you want to schedule a demo of our Marketing ROI tool and talk through it with our team, book it here!

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