$1 trillion—that’s the estimated marketing spend worldwide in 2022. Your company’s marketing budget might sound like a drop in the bucket compared to the global number but, large or small, we all must justify our numbers. Learning how to forecast marketing ROI can help.
A simple calculation for marketing ROI looks like this:
Marketing revenue — marketing spend/marketing spend x 100.
The calculation is straightforward. Unfortunately, the process for calculating it typically is not.
How to Forecast Marketing ROI
Let’s break down the two components: Marketing Spend & Marketing Revenue.
What should be included in a Marketing Spend? It may be quite easy to calculate the direct costs to facilitate marketing on platforms such as Google and Facebook, but are you including costs for content/creative, agency fees, and operational overhead? How do you calculate the cost of sending an email? What is the cost of a blog posted on your website? What’s the cost to operate your website? To accurately gauge the impact of Marketing Spend, we need to think through all costs that are incurred during the marketing process.
What about Marketing Revenue?
Some typical complications for calculating Marketing Revenue are that not all marketing activities are directly attributable (display, OOH, blog posts, etc.) to a conversion, so differentiating “Marketing Revenue” from overall revenue can be tricky.
Some marketers may opt to attribute all indirect sales to marketing, but that’s not always accurate. Another popular solution has been Multi-Touch Attribution (MTA) models, but these days MTA models are difficult to achieve at scale with the multiple devices, privacy settings, disconnected platforms, etc., that prevent a marketer from completely understanding the full path to conversion.
Due to the difficulty and expense of maintaining an MTA model, it’s likely the usefulness of it will continue to wane and be replaced by more easily obtainable methods. Another approach that has seen a recent resurgence is the Media Mix Modeling (MMM). It allows marketers to use campaign and channel level metrics to project the impact of various marketing initiatives for determining how much investment is needed across each channel and its expected return.
Along with MMM, here are some additional methodologies useful for measuring performance:
- Channel-specific attribution models with direct attribution (Email, Search, Social, etc.), which can help model a rolled-up Marketing ROI calculation.
- Customer Lifetime Value—Is the value of the customer increasing? Are certain channels driving more valuable customers?
- Lifecycle Forecasting—Where are the customers in their lifecycle, How has more targeted and personalized messaging impacted churn and retention rates?
To better understand the mechanics of calculating ROI across a variety of channels, we’ve created a worksheet where you can explore the impact different optimizations will have on Revenue, Profit Margin and ROI. You can download it here.
While Overall Marketing ROI is important to understand, in some respects it may be unattainable for many businesses. For those, we suggest using a more granular approach to assist in ROI calculations where revenue and attribution can be determined more easily.
Like we said at the beginning, forecasting can be a cumbersome process. If you find yourself without the bandwidth, resources, or acumen to confidently work through the equation alone, having an experienced and knowledgeable partner like D6 to help you work through the process is an invaluable resource.
