You may have heard the saying, “you can’t manage what you don’t measure.” ROI-driven marketing budgets are a perfect example of this. ROI marketing is all about using data to know how much revenue investment will generate as a return. 

Businesses spent 30.6 billion on marketing data in 2021. And for a good reason: they are essential for planning and measuring performance over time. 

What is ROI Marketing?

ROI, or return on investment, is one of the most important metrics to measure in marketing. It measures how much money you make back from your marketing investments. To calculate ROI, you need to know two things: your cost of investment and the revenue generated from that investment.

ROI can measure any campaign, from online ads to email marketing. It’s a great way to see whether or not a particular campaign is worth investing in again. 

If the ROI is negative (meaning you’re losing money on the campaign), then it might be time to rethink your strategy. However, if the ROI is positive, then you know that campaign is worth continuing.

What is the Role of ROI in Companies?

Marketing ROI is the ultimate measure of success or failure for any company. With today’s heightened competition for customers, especially in B2B, it’s more important than ever that companies use their budgets wisely. 

Ensuring a return on investment is crucial to the success of every company, whether big or small. Key reasons why companies require this investment measuring technique are:

1. Measure Campaign Success

Marketing ROI is used to determine the effectiveness of a company’s marketing investment. It measures how much revenue has been generated by a specific marketing activity or campaign and compares it to the associated costs. This allows companies to make data-driven decisions about allocating their marketing budget to generate the highest return on investment (ROI).

By using ROI, companies can be confident that they are investing their money in activities that will generate results and grow their business. When setting your company’s marketing budget, it is important to remember that not all campaigns will have an immediate ROI.

Sometimes it takes time for a campaign to gain traction and start generating sales leads or website traffic. In these cases, it is important to look at the long-term ROI of a campaign to get a complete picture of its effectiveness. Via ROI tracking over time, you can identify which campaigns generate the best results and invest more money in them.

2. Budget Allocation

One of the primary ways that companies use ROI is to help them determine how much money to invest in their marketing budget. This number can be tricky to calculate as it considers a variety of factors such as the company’s overall sales goals, its customer acquisition costs (CAC), and the average lifetime value (LTV) of each customer.

However, once this calculation has been made, it can provide a reliable guide as to how much money should be allocated to marketing each year.

3. Spotting Trends

Calculating ROI over time allows you to spot trends in performance and measure whether things like budgeting or strategy changes have impacted them positively or negatively. This can help you plan better next year by knowing what’s working and what isn’t. The resulting data visualization will show patterns that might not emerge from individual metrics alone, such as conversion rates or click-through rates.

Trends can also reveal new growth opportunities.

4. To Justify The Spend

In ROI terms, marketers today need to prove that their marketing investment produces a return. This means investing in initiatives with measurable results and tying investments back to dollars spent and the value of those dollars on key business metrics such as revenue growth or lead generation volumes.

True ROI-driven budgeting requires marketers to measure both costs and benefits – even if they aren’t directly related at first glance.

5. Competitive Analysis

One way that ROI is used within businesses is for competitive analysis. To allocate resources best, a company needs to know how its products and services compare to the competition.

For instance, iGaming is a competitive industry, and to stay ahead of the competition, you need to be intelligent with your marketing budget. It’s important to calculate and then increase the ROI so that you can make sure that your investments are paying off. That’s what Scanteam does every month.

This can be done through various measurements such as market share, revenue growth, and profit margins. ROI allows business leaders to make more informed strategic decisions about investing money to grow the company.

For example, if a company has large profits but a low market share, it may increase its marketing budget to gain new customers. Alternatively, if a company has low profits but a large market share, it might focus on cutting costs rather than increasing its spending. ROI provides an objective framework for making these types of comparisons and is a key part of marketing in companies.

How to Calculate ROI?

ROI can be used to compare the effectiveness of different marketing campaigns. It can be positive or negative depending on whether the campaign generates more money than operating costs. 

ROI can be calculated by dividing the profits generated from a campaign by the costs of running that campaign. 

ROI = (Return – Cost) / Cost

• A positive ROI indicates that the marketing campaign generates more money for the business than operating costs.

For example, if a company spends $1,000 on a campaign and generates $1,250 in profit ROI = 125% ($250 / $1000).

• ROI is negative when the marketing campaign costs more money than it’s generating. 

For example, if a company spends $1,000 on a campaign and only generates $750 in profit, ROI is -25% ($250 / $1,000).

Steps to Building an ROI Focused Marketing Budget

The ROI-Driven Marketing Budget results from a marketing budgeting process that allows marketers to prioritize and align resources based on the company’s goals, mission, and vision. The steps outlined below will give you an overview:

Step 1: Identify Goals & Objectives

Define specific goals for each campaign or initiative (e.g., increase the market share; reduce customer acquisition costs) and company objectives (increase revenue by X%). Then list any KPIs required to measure success against those goals/objectives (e.g., number of new customers). Create a document with all this information so that everyone can refer back throughout the year.

Step 2: Determine the Budget Size

Every digital marketer worth their weight in gold knows that one of the biggest challenges to digital marketing is knowing how much you should be spending. For most business owners, especially those just starting with online advertising, figuring out the budget can leave them feeling lost and confused. Even for seasoned marketers, getting an accurate picture of what’s affordable for a company can be difficult to do without hours of research. 

However, it doesn’t have to be this tough. Digital marketers often make the mistake of assuming they know exactly where to start when creating budgets. While there is no set answer on what your ideal budget should look like, you will never find success if you don’t base your strategy on real data.

Here are five strategies to consider when determining your marketing budget’s size:

1. Evaluate your customer lifetime value (CLV)

A common goal for marketing managers in digital advertising is to create a campaign that balances profit and return. CLV refers to the average profit made from a single customer transaction. CLVs are often used to develop digital marketing budgets for e-commerce companies, where it’s important to know how much each sale will benefit a business.

The first step to figuring out your budget is understanding your customer lifetime value (CLV). This metric will help you understand how much you can spend on acquiring a new customer without negatively impacting your bottom line. Calculating CLV is not an easy task, but it is worth the effort, as it can help you make more informed decisions about your marketing budget.

There are several different ways to calculate CLV, but the most common approach considers the average revenue generated over the customer’s entire lifespan with your company. Once you have an estimate for CLV, you can allocate more funds toward customer acquisition and retention campaigns.

2. Prioritize your marketing channels

Another important factor to consider when creating your budget is which marketing channels are most effective for your business. Not all channels are created equal, so it’s important to invest in the ones that will have the biggest impact. There are several factors you should take into account when deciding which channels to prioritize, including:

• The demographics of your customers
• Which channels generate the most leads?
• Which channels have the highest conversion rates?

Once you understand which channels are most effective for your business, you can begin to allocate more money towards them. For example, if the total value of all transactions with an individual customer were $100, that person would have a lifetime value of $100. 

The higher this number is, the more likely you are to do everything possible to keep them buying goods or services from you because they will bring in enough money so long as they continue doing so. This means understanding what makes them tick, targeting these customers with specific marketing efforts, and retaining them with personalized messaging.

3. Start small and grow.

One of the most common mistakes digital marketers make is overestimating their budgets. It’s important to start small when creating your first budget to see what works before growing it as needed. 

While many people think this approach won’t allow them to scale quickly enough, starting small will allow you to build a strong foundation for your company that can be sustained long term. Plus, if you begin with a modest budget and it doesn’t work out, then you’ll know exactly where to cut next time around.

4. Create separate budgets for each department (if possible)

Not all budgets are created equal. For example, the same amount of money might not be ideal for every department within your company. 

That’s why it’s important to create separate budgets for each department, if possible. This will help you better track your spending and ensure that each department gets the resources they need.

5. Use predictive analytics

Predictive analytics can be used to help you plan your budget for the future by forecasting how much you’ll need to spend to achieve your desired results. This approach uses historical data to predict future trends and events, allowing you to prepare for them well in advance.

Step 3: Analyze Past Performance

Look at performance data from the past year (or more) to understand what worked and what didn’t. This will help you determine which channels are most profitable and should be allocated more resources and identify any weak spots that need improvement.

Step 4: Calculate the Cost of Your Marketing Efforts

Next, you need to calculate the cost of your marketing efforts. This includes both the direct costs, such as advertising and promotional materials, and the indirect costs, such as staff time and overheads. Be sure to include all expenses associated with your marketing campaigns, even if you don’t plan on recouping them in ROI.

Step 5: Allocate Resources Based on ROI

Once you know which channels generate the highest ROI, it’s time to start allocating those funds to the various areas of your marketing plan. This might include the following methods:

1. Search Engine Optimization (SEO)

SEO will never go out of fashion, and if you don’t want to miss out on any visitors, SEO is there for you. First, the subscribers who go to Google’s search engine are most likely looking for information about a specific brand or industry rather than just browsing through content on various sites. If they can’t find your company among the first results, the chances are that they’re going to look elsewhere.

Secondly, it’s important to control what people see on their screens when they do an internet search for your business. It’s the only way to influence what benefits them and creates value for your brand at this stage of the game. 

Put yourself in your customers’ shoes. What kind of message would you like to see on the first page?

2. Paid search engine advertising (PPC)

This is an effective way to quickly get in front of your target audience. It’s also a good option to test which keywords are most relevant to your business. You can adjust your budget as you please and terminate the campaign at any time. 

Just be aware that, as with all things, there is a learning curve involved for you to get the most out of this type of online marketing investment.

3. Content marketing

It should come as no surprise that content reigns supreme when it comes to online marketing strategies. After all, it’s one of the best ways to tell customers that you’re an authority in your field. 

And, as we’ve mentioned before, people are increasingly turning to the internet for information. That’s where you come in with well-crafted blog posts, videos, and other types of content that can educate and engage your audience.

4. Social media marketing

This is a great way to connect with potential and current customers more personally. Over 76% of people say they’re more likely to buy from a brand they follow on social media. Social media can be an incredibly powerful tool for building trust and loyalty with your target market with the right strategy in place.

5. Email marketing

It’s still one of the most effective ways to reach out to customers who have already shown an interest in your products or services. And, with the right automation tools in place, it can be a very efficient way to keep your brand top of mind. 

Just make sure that your content is engaging and relevant to your target audience, or you might see your open rates and click-through rates start to dwindle.

Step 6: Set Benchmarks & Targets

Determine realistic benchmarks and targets for goal/objective-related KPIs. For example, if your ROI target is 20%, you should set benchmarks and targets accordingly to highlight any significant variations from the benchmark early on.

Step 7: Track Results and Make Adjustments

Monitor progress throughout the year against these benchmarks/targets to see whether changes in budget allocation or marketing strategy need to be made according to ROI performance. If actual ROI exceeds your expectations, it’s time to increase investment in those channels; if ROI is lower than expected, reallocate resources towards more profitable activities.

However, making changes too frequently can hurt ROI as it becomes difficult to track progress when goals keep changing. A good rule of thumb is to make changes every quarter or half a year to allow for enough time to see meaningful results.

Conclusion

An ROI-driven marketing budget prioritizes each investment based on the expected return. This approach helps businesses prioritize their expenditure, maximize ROI and scale up successful strategies for growth. 

At its core, ROI provides a framework to measure an organization’s performance against revenue or profit targets concerning money spent on acquiring customers and keeping them engaged.

If something isn’t working, don’t be afraid to try a different approach. The most important thing is to keep track of your progress and make changes based on what’s working for your business.