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What is Return on Investment (ROI)?

MARCH 1, 2010: Brian Haugen, Interactive Marketing Strategist
Guest Blogger Integrated Marketing Results Targeting

I can't count how many times I've been to a presentation and heard a marketer ask what the ROI is on a campaign and the response being some form of the following:

  • We got a lot of clicks from this channel and not a lot from this channel.
  • We think it was really good. We got a lot of really good feedback from customers and sales are on the rise.
  • Our list now has this many more addresses.

When you hear responses such as these, what's your initial reaction? If you're thinking something along the lines of "I need a number" or "was that the goal?" you're on the right track.

Let's jump over to Wikipedia and just see what they have for a definition. ROI "is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested." Ratio of money, I think, is the key piece that some people miss the boat on. It's easy to track clicks, tweets, or interactions. It's hard to tie each of these things to dollars. Perhaps it can sometimes feel like this:

 

ROI Tracking Illustration

Becoming familiar with tying clicks to revenue by thinking through your tracking plan upfront can save a lot of time, and make you a hero. When you're planning your next campaign, try answering these types of questions before you launch:

  • How much money is going into this?
  • How much money should we get out of this?
  • How much is a lead worth to us?
  • What is the lifetime value of a new customer?
  • What is the lifetime value of cross-selling an existing customer?

I wouldn't worry if you can't come up with exact numbers here. The important thing is to go through the process of estimating. That's when you'll probably find yourself really thinking through all of the contingencies and moving parts that are associated with your campaign. I am confident that if more marketers thought this way about their campaigns, the knowledge that comes out of it would make marketing budgets become larger and integrated campaigns more efficient.

P.S. I can already hear our design team making fun of my sketch.

This blog post was originally published on the Priority Blog at priorityresults.com/blog. Priority Integrated Marketing is now BlueSpire Strategic Marketing.

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