How NOT to calculate Marketing ROI

Following is an excerpt from an email I got from one of my clients:

……there might be a positive ROI on actual ad spend, there is actually a negative ROI overall (including cost of shipping, products, packaging, staff etc)”

This discussion (or better day disagreement) was around how to correctly calculate the marketing ROI.

And this is not the first time, I have faced such objection.

There are still lot of marketers and business owners out there, who calculate marketing ROI incorrectly.

Following is the most basic formula to calculate ROI:

ROI = (return from investment – cost of investment) / cost of investment

Almost everyone agree with this formula and agree that it is correct.

The disagreement popup when it’s the time to decide, what should be included as ‘cost of investment’.

For marketing ROI, the cost of marketing, is the cost of investment.

Marketing cost should include both ad spend and marketing fees.

If you do not take marketing fees into account then what you are calculating is ‘return on ad spend’ (ROAS) and not ROI.

Now the question comes, why some clients raise such objection in the first place?

There could be a situation where your client is not overall profitable as a business, despite of positive marketing ROI.

This could be due to some operational inefficiencies like bureaucracy, company culture, product pricing, merchandising etc.

As a marketer you have no control over client’s operational inefficiencies.

You have no control over the operational and strategic decisions that your client takes in his office regarding how their business should run and grow.

You have no control over client’s staff salaries, product pricing, shipping, packaging , merchandising, operational cost and the various taxes, custom, excise duty etc that they have to pay.

Your role is limited to advertising their products/services and so should be your business liability.

Your job as a marketer is to make sure that you recover your entire marketing cost, including your own fees and make money on top of that.

You are not responsible for generating staff salaries or recovering entire product manufacturing and distribution cost from your marketing efforts.

We never calculate marketing ROI like that.

Long story short, as a marketer you are not responsible for the overall profitability of the client’s business.

That level of responsibility lies on the shoulder of key stakeholders (business owners, business partners, top level executives) within the client’s company.

So next time, when you face such objection from one of your clients, educate him/her about your limitations as a marketer.

Other articles related to ROI:

 

Do you know the difference between Digital Analytics and Google Analytics?


99.99% of course creators themselves don’t know the difference between Digital analytics, Google Analytics (GA) and Google Tag Manager (GTM).

So they are teaching GA and GTM in the name of teaching Digital analytics.

They just copy each other. Monkey see, monkey do.

But Digital analytics is not about GA, GTM.

It is about analyzing and interpreting data, setting up goals, strategies and KPIs.

It’s about creating strategic roadmap for your business.


Digital Analytics is the core skill. Google Analytics is just a tool used to implement ‘Digital Analytics’.

You can also implement ‘Digital analytics’ via other tools like ‘adobe analytics’, ‘kissmetrics’ etc.

Using Google Analytics without the good understanding of ‘Digital analytics’ is like driving around in a car, in a big city without understanding the traffic rules and road signs.

You are either likely to end up somewhere other than your destination or you get involved in an accident.


You learn data analysis and interpretation from Digital analytics and not from Google Analytics.

The direction in which your analysis will move, will determine the direction in which your marketing campaigns and eventually your company will move to get the highest possible return on investment.

You get that direction from ‘Digital analytics’ and not from ‘Google Analytics’.


You learn to set up KPIs, strategies and measurement framework for your business from ‘Digital analytics’ and not from ‘Google Analytics’.

So if you are taking a course only on 'Google Analytics’, you are learning to use one of the tools of ‘Digital analytics’. You are not learning the ‘Digital analytics’ itself.

Since any person can learn to use Google Analytics in couple of weeks, you do no get any competitive advantage in the marketplace just by knowing GA.

You need to know lot more than GA in order to work in digital analytics and marketing field.


So what I have done, if you are interested, is I have put together a completely free training that will teach you exactly how I have been able to leverage digital analytics to generate floods of news sales and customers and how you can literally copy what I have done to get similar results.

Here what You'll Learn On This FREE Web Class!


1) The number 1 reason why most marketers and business owners are not able to scale their advertising and maximise sales.

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My best selling books on Digital Analytics and Conversion Optimization

Maths and Stats for Web Analytics and Conversion Optimization
This expert guide will teach you how to leverage the knowledge of maths and statistics in order to accurately interpret data and take actions, which can quickly improve the bottom-line of your online business.

Master the Essentials of Email Marketing Analytics
This book focuses solely on the ‘analytics’ that power your email marketing optimization program and will help you dramatically reduce your cost per acquisition and increase marketing ROI by tracking the performance of the various KPIs and metrics used for email marketing.

Attribution Modelling in Google Analytics and Beyond
Attribution modelling is the process of determining the most effective marketing channels for investment. This book has been written to help you implement attribution modelling. It will teach you how to leverage the knowledge of attribution modelling in order to allocate marketing budget and understand buying behaviour.

Attribution Modelling in Google Ads and Facebook
This book has been written to help you implement attribution modelling in Google Ads (Google AdWords) and Facebook. It will teach you, how to leverage the knowledge of attribution modelling in order to understand the customer purchasing journey and determine the most effective marketing channels for investment.

Himanshu Sharma

Digital Marketing Consultant and Founder of Optimizesmart.com

Himanshu helps business owners and marketing professionals in generating more sales and ROI by fixing their website tracking issues, helping them understand their true customers purchase journey and helping them determine the most effective marketing channels for investment.

He has over 12 years experience in digital analytics and digital marketing.

He was nominated for the Digital Analytics Association's Awards for Excellence.

The Digital Analytics Association is a world renowned not-for-profit association which helps organisations overcome the challenges of data acquisition and application.

He is the author of four best-selling books on analytics and conversion optimization:

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