In marketing, the purpose (which seems to be a mystery to many) is to create customers. It is a very simple equation (this is where all those high school math classes come in), which essentially states spending X amount of dollars to create Y number of new customers. Despite how simple the equation is, the fact remains that your understanding/lack of understanding of Marketing ROI will greatly determine the success of your practice.
In this post I will make sure you understand how marketing ROI should be calculated.
Need some inspiration? Check out these “How-To” examples from the HubSpot blog:
Digital Marketing: Dorthy, we are not in kansas any more!!!
With the evolution of digital marketing and social media, it is now possible to track and measure substantial every marketing campaign. Information is provided on every aspect of every marketing effort. This has created the age of data overload. All the new information does not change the end goal: Marketing is a means of creating new customers. All the clicks in the world do not mean squat if it does not lead to patients in your office. Many marketers have lost sight of the true goal. Bring business (actual dollars and cents) to the practice. Instead they focus on website traffic, clicks, landing pages and so forth. All of these things are important but they are not the end goal. They are merely a means to the goal. Simply put, they are tools to be used.
How to Calculate Marketing ROI
Return on investment (ROI) is a measure of the profit earned from each investment. Like the “return” (or profit) that you earn on your portfolio or bank account, it’s calculated as a percentage. In simple terms, the ROI formula is:
(Return – Investment)
It’s typically expressed as a percentage. Simply multiply your result by 100.
ROI calculations for marketing campaigns can be complex — you may have many variables on both the profit side and the investment (cost) side. Understanding the formula is essential if you need to produce the best possible results with your marketing investments.
One basic formula uses the gross profit for units sold in the campaign and the marketing investment for the campaign:
Gross Profit – Marketing Investment
You can also use the Customer Lifetime Value (CLV) instead of Gross Profit. CLV is a measure of the profit generated by a single customer or set of customers over their lifetime with your company.
Customer Lifetime Value – Marketing Investment
However, some companies deduct other expenses and use a formula like this:
Profit – Marketing Investment – *Overhead Allocation – *Incremental Expenses
*These expenses are typically tracked in “Sales and General Expenses” in overhead, but some companies deduct them in ROI calculations to provide a closer estimate of the true net profit their marketing campaigns are generating for the company.
The components for calculating marketing ROI can be different for each organization, but with solid ROI calculations, you can focus on campaigns that deliver the greatest return. For example, if one campaign generates a 15% ROI and the other 50%, where will you invest your marketing budget next time? And if your entire marketing budget only returns 6% and the stock market returns 12%, your company can earn more profit by investing in the stock market.
Finally, ROI helps you justify marketing investments. In tough times, companies often slash their marketing budgets – a dangerous move since marketing is an investment to produce revenue. By focusing on ROI, you can help your company move away from the idea that marketing is a fluffy expense that can be cut when times get tough.
Wrapping it Up
What may be the most important take away from all of this is that the desire to connect dots that don’t connect needs to be avoided at all costs when trying to measure the ROI of certain marketing practices. For instance, the value of a follow, a like, a click or an impression; sure you can build an equation that will give you an answer but don’t be upset when I pass judgment on you for making ridiculous correlations. The desire to put a stake in the ground with a flag that says “Marketing ROI” will probably continue to radiate like heat in the Sahara Desert, but just remember the mirages that you see when you reach your most desperate point are most likely not real, which sounds an awful lot like Marketing ROI?
Contact Digital Limelight Media today to learn more about how we calculate Marketing ROI for our Medical Practices.