With $3.449bn spent by Australian marketers in Q1 of 2022 for digital and ads, it’s become more imperative than ever for marketers to understand how they’re spending their budgets so as to be able to make optimised budget decisions. This is where marketing ROI (MROI) comes in as it is an important measurable metric.
Successful marketing organisations are driven by data, and a firm grasp on attribution, fraud, and misattribution — all contribute to profitable marketing performance. With MROI marketers measure the revenue generated from a company’s marketing spend, which varies from one organisation to another and can encompass everything from overhead, salaries, media buys and creative services.
When calculated accurately, MROI serves as a north star for long term strategic planning. It sheds light to what channels to invest in, how to allocate budgets, who to hire, and track spending levels over time.
Measuring your MROI in three steps
MROI can be measured with the formula above. Though sometimes, it gets quite tricky to get the right numbers for total marketing spend and determining the sales growth. To ensure you get it right here are a few steps to help you out:
Step 1: Determine your KPIs
Multiple metrics relevant to your campaign’s goals need to be used. Identifying which KPIs are valuable to your business is the first step. Some of the frequently used metrics include: Cost per Lead (CPL), Customer Lifetime Value (LTV), Conversion Rates, Average Order Value (AOV).
Step 2: Identify your attribution model
Marketing attribution is about identifying which marketing touchpoints lead to a conversion. Understanding which touchpoints play the largest role in driving a conversion, will help determine what channels, campaigns and factors contribute the most to your bottom line. Attribution models vary from first touch attribution, meaning the first touchpoint receives 100% credit, to multi-touch attribution, where multiple touchpoints are taken into account, and then assigned credit to each based on varying logic per business.
Step 3: Determine what metrics to measure
There is no single number that determines whether or not your MROI is good. Your number can also depend on external factors including market conditions, stage of your marketing campaigns, and your revenue goals.
A few challenges ahead
MROI should paint a holistic picture of an organisation’s marketing performance. However, even with great strides in attribution technology, there are some common challenges that lower MROI’s efficacy.
One of the most common reasons is inaccurate data sources due to incorrect attribution. To anticipate this, measuring the correct parameters is crucial. Having confidence in your numbers comes from reducing and minimising fraud and misattribution, which can be done by partnering with a trusted mobile measurement partner and utilising predictive modelling.
Other than that, looking at other data could also help anticipate the challenge. MROI should only be a portion of the whole marketing equation. Business decisions should never be made strictly looking at MROI, which like every other marketing metric, needs to be supplemented with contextual information such as market factors, competition, and the stage of the company.
Be aware that factors such as privacy laws such as Apple’s App Tracking Transparency (ATT) policy, which has caused advertising costs to skyrocket can have an impact on your MROI calculations despite campaigns performing well.
Marketing efforts don’t always begin with a positive ROI. A good example is search engine optimisation (SEO) which generally requires six or more months to see positive results if you’re starting from scratch.
Other times you might need to invest more in the beginning to kickstart your marketing campaigns to build momentum.
While calculating MROI has many benefits, one of the biggest downsides to be cognizant of is working with a limited time frame. The effectiveness of marketing across the entire funnel is minimised when there is too much focus on monthly revenue numbers.
To sum it up, when calculating MROI, be sure to look at the big picture of how marketing can improve metrics across the whole channel which include retention rates, referrals, and average order values. Only then can you get a complete overview of your ROI on your marketing campaign.
Antony Wilcox is director of growth at AppsFlyer for Australia & New Zealand