To improve ROI, change your approach

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ROI is a concept that is commonly pushed to determine if your content and marketing strategy is paying off . Many marketers will tell you that ROI is dead, that you can’t improve your return on investment, and it’s because the metrics are being measured incorrectly.

The reality is that this indicator is alive and well and remains highly shareholder database elevant, as long as it is managed and addressed appropriately.

Once you learn how to approach it more effectively, you can change everything for the better. Read on to find out:

What is ROI?
Why is it believed that ROI cannot be improved?
Why ROI is really alive and well?
How to calculate ROI?
How to use ROI correctly?
What is ROI?
ROI is an abbreviation for Return Over Investment.

Essentially, it's a way to measure what kind of profit you're getting based on the money you're investing in a marketing strategy. ROI is an important metric as it can tell you if you're spending money in the wrong areas.

Marketing strategies can bring a lot to a company, and at the same time make us lose money, if we do not analyze and follow them effectively.

For this reason, it is important to have data that shows us the total cost of the strategies and the money used to keep them afloat and lead us to the results we expect.

There are many metrics to measure this reality and it can be overwhelming to choose which ones you want to use. But what happened to the premise of setting up a marketing campaign simply for the engagement it brings, without taking into account the finances?

There is absolutely nothing wrong with prioritizing engagement, but it cannot cloud our vision and lead us to put money aside.

The reality is that marketing budgets are not unlimited. In fact, many companies have a moderate budget for this area.

Furthermore, even when there are large marketing budgets, it is necessary to know how much is being spent and whether the performance supports the investment.

That’s why ROI has been a mainstay in the world of metrics-driven marketing.

Return on investment is a key indicator that allows us to optimize resources and, in general, know what works and what doesn't from a financial point of view.

While marketers preach that it takes money to make money, executives want proof that this is true.

ROI has become a buzzword, and when so many businesses want to analyze their results, this metric works as an effective way to measure the success of a marketing strategy. However, over time, ROI calculations have failed, leading many to stop recognizing its importance.

Why is it believed that ROI cannot be improved?
If something doesn't produce the results you want, stop using it. This is what happened with ROI.

Surveys have shown that thousands of marketers around the world have stopped using ROI as a metric because they feel it is no longer accurate in measuring the effectiveness of a marketing strategy.

Has ROI suddenly failed? Is it no longer relevant? No. Many marketers have done away with it, but it needs to be resurrected.

Too many marketers failed to understand how ROI was calculated. They were using the wrong numbers, rendering the metric meaningless.

Instead of backtracking to figure out where they went wrong, they declared ROI dead. After all, why focus on something that clearly isn't helping us?

Before you can understand why ROI was declared dead, you need to understand why the metric was designed in the first place.

The ROI metric is useful when evaluating capital projects. The investment is made once, making it easy to see what the immediate return is.

Advertising is an investment, so it would make sense to look at ROI. The problem is that most people spend money on advertising every month.

It is often a short-term expense with a short-term return. For those who want to look at the long term, it is difficult to understand how ROI influences the strategy. After all, if you spend money on SEO strategies , it could take months to really see how it works.

Marketing in general can take even longer because it involves managing customers at all stages of the sales funnel.

To calculate ROI , you look at the net profit return divided by ad spend. However, if they don’t see that net profit return, marketers argue that ROI is a useless metric.

ROI formula
So since most people didn't believe it could work, they abandoned it. They felt ROI was a false metric, so they went and buried it as deep as they could.

Many, even after being told that they can still use ROI, refused to take it into account. Their argument is that advertising expenses are ongoing.

They believe it should be put on the profit and loss account. They believe it gives a false picture of what is happening. They also believe that ROI, when calculated at a high rate, shows that more money should be spent.

Marketers who refuse to understand ROI choose to ignore it. They believe that this metric can be manipulated and do not want to rely on a supposedly vulnerable element when it comes to demonstrating the overall value of a marketing strategy.

Why ROI is really alive and well?
ROI is a buzzword that most people understand. It's also an easy number to calculate, if you use the right numbers.

To understand why the metric is so important, it is first necessary to understand where the most common mistakes are made during its calculations:

ROI is measured too quickly within the sales cycle
KPIs are confused with real ROI
Pressure makes marketers demonstrate faster performance
The reality is that ROI is based on when the return is achieved, and that can only be achieved once the customer has gone through the entire sales funnel.

If you push a measurement before the sales cycle is complete, you are not actually measuring ROI.

It's important to understand the actual length of your sales cycle. This can vary from months to years depending on a number of factors (B2B vs B2C, product cost, industry, etc.). If you don't allow this cycle to complete, you're dealing with bad data.

KPIs, also known as key performance indicators, are used as an ROI rather than what they are: specific metrics to help with optimization.

Many digital marketers measure ROI in the first month, even though they know their sales cycle is six months. That way, they are getting a KPI on partial results over a certain period, but not the big picture, which at the end of the day is what ROI should deliver.

lead generation
Depending on everything else that's going on and the tools you have to drive your buyer persona through the sales funnel, a lot can happen in the second or third month of the sales cycle.

Estimating it in advance will result in the result being lower than its true potential. This can reduce marketers' confidence and even discourage them from a certain strategy.

Marketers work hard to establish strategies and launch campaigns that will result in a solid ROI.

The problem is that many of them rush to report due to internal pressures and tight budget allocations. They calculate too quickly and are forced to change their route because the return is not as strong as it should be.

When ROI doesn't support what marketers envision and perceive about the campaign, they abandon the metric altogether.

Instead, they choose insufficient metrics to prove that a campaign is working, such as increased website traffic or revenue growth over a given period. ROI is alive and well, but it must be used correctly to demonstrate true return on marketing investment.

Knowing when you will see the return after making the investment is essential.

How to calculate ROI?
If you're going to use ROI as the effective metric that it is, there is a correct way to calculate it.

Otherwise, you are not calculating ROI or you are getting a false number that can affect your decisions and strategy development.

One of the main reasons to calculate a metric like this is to make sure you get the right value. Doing the analysis too early can mean you're putting an end to a strategy that's actually good for your business.

So, are you calculating ROI?
Just as many have declared that ROI is dead, others claim to calculate it, when in fact they are not doing it correctly.

If you're evaluating the financial return on your investment, then it's ROI. If you're trying to analyze something else, such as a specific, time-based variable, you need to find a different acronym to describe the process.

Calculate ROI
You need to divide incremental profits by investment to calculate your ROI. This is where things can get complicated.

First, you never want to use total profits. The reason is that it exhausts your metric. Instead, you should subtract the profits that would have been made even if you hadn't made the investment.

The easiest way to understand this is to look at the ROI of investing in a website. If you only had in-person sales before launching the website, then you can't count the revenue from these in your ROI, as it's not a result directly associated with the project.

Only count online sales, as these are the ones directly affected by the launch of your website.

Second, you should wait until the end of the sales cycle. If you are monitoring sales coming from a particular channel, wait until the end of the process, whether it is a month, six months, or even a year. Only then will you be able to determine the actual performance outcome.

Pay attention to the numbers
When marketers were surveyed to find out how they measure ROI, it was clear that many weren't paying attention to the details.

For example:

You can't poll consumers to get your ROI because they don't have that data;
It cannot be calculated using managerial interpretation, since it cannot be subjective;
You must have both a concrete investment and a nominally calculated return to determine ROI.
If you are not done investing or you are not done getting the return, you can only set a KPI that will lead to ROI. Don't be one of the marketers who tries to argue that ROI is true or false without having all the facts.

Once you change your approach to how you calculate ROI, you'll learn not only how to use it, but what other metrics are equally important.

How to use ROI correctly?
Marketing metrics allow you to prove that you are on the right track. As you implement new marketing strategies, you need to make sure you are spending money where it matters most.

Understanding ROI allows you to determine if you are using the thousands or millions you spend on marketing wisely.

If you are a marketer, you need this metric to prove the value of your strategy. If you are an executive, you need this metric to keep spending money.

Explore ROI with other metrics
ROI isn't the only number you should be using, either. A long time ago, marketers decided they were going to live and die by ROI.

It's one of several metrics you should embrace. After all, you can't oversimplify reality: marketing isn't just about profit. It's also about sentiment and behavior.

By using more metrics, you can be sure to get the full picture. CAC ( customer acquisition cost ) is an important KPI and goes hand in hand with ROI. Analyze the total cost of your marketing spend over the time span and the number of customers you acquired, and that will give you the result.

This allows you to actively work to spend less money on customer acquisition, and that can work hand-in-hand with ROI.

Average purchase value is also important. This is one of the easiest metrics to calculate and can show you how to focus your marketing strategies to increase loyalty and purchase receipts.

Then, as you drive CAC lower and increase average order value, you'll help boost your ROI.

By using all these numbers, it is easier to wait until the sales process is closed to deliver ROI.

Provide the other numbers, and then let your marketing strategy linger long enough to have an impact on consumer behavior. Only then can you be sure that the metrics are giving you the full picture.

Rely on all possible data and indicators
Use all the metrics you can get your hands on. That way, when you are forced to calculate ROI too early, you can present it as a supplementary, temporary KPI, rather than a final conclusion.

You can use other metrics to prove you're on the right track until you can present ROI when it really is the exact number.

There is no reason why you should feel overwhelmed by ROI . Marketing must follow its natural processes to be truly productive.

If you spend more than you earn, it's best to find out as soon as possible.