Every business owner is familiar with the questions that lurk in the back of our minds: “How do I know if I am doing the right thing to grow my business?” “How do I know if I’m actually helping my clients?” How do I know if this is the right way to grow my Facebook audience? What if I’m managing this account all wrong and it doesn’t grow?” What it really boils down to, is “what is your marketing’s ROI?”
Sadly, most of these questions end up being mostly rhetorical. We usually don’t get a firm “yes” or “no” answer. That’s the nature of marketing – it’s trial and error, it’s guesswork, and it’s adjust and try again. However, these are the kinds of questions that can be addressed, at least to a certain extent, by looking at your ROI – Return on Investment. ROI is a critical thing to consider once in a while, because it highlights where you are losing resources, where you are not doing something “right”, and even where you need to start or stop doing something altogether.
I can’t tell you how to calculate your ROI without explaining the various kinds of ROI that you might be getting.
Tangible ROI (I made up that title, just so you know.) is usually calculated in hard data. If you’re spending money on something, you need to know that you’re getting money back. If you’re putting a certain amount of time into a project, it needs to be profitable.
Let’s look at a real life example of ROI, from one of my former jobs.
I was once in charge of an annual fundraiser for a nonprofit I worked for. I had to find a way to make more people want to participate in it, get more money from it than in previous years, and find ways to “trim the fat” off of the volunteer hours and up front costs.
When I was done with the event, I was able to show hard data that proved that I had been successful. (Well, WE had been successful. I was in charge of it, but many people made it work!) I was able to calculate a 14% increase in revenue from the previous year, a slight reduction in up front expenses, and I established a clear system to follow the years following so that I could keep my stress level down too. Ha!
The part I loved the most, though, was that I could show a very solid ROI! I could calculate how much we spent on the event, including my labor, and how much we earned. This revealed a 1,500% ROI rate!
But when some of the nonprofit board members wanted to do an additional fundraiser and they presented their idea, I had to confess that I wasn’t excited about their idea for the fundraiser because of the ROI. They wanted to do an event that would cost nearly half as much to put together as we would earn when it was over. This meant we could expect an ROI of about 250% at most.
You might be saying, “Well, 250% isn’t bad!” And you’re right, it isn’t bad. But we needed to acknowledge that that fundraiser would cut into the profits we’d receive from the other fundraiser, which had a significantly higher ROI. It wasn’t worth it.
So how do you know how much your ROI is? It’s a simple math formula:
Results / Expenses, turned into Percentage
Whatever your answer is, just move the decimal point over two spaces to determine the percentage.
For example: if you spent $350 on a newsletter to mail out to all your customers, and they came in droves and bought loads and loads of your new product, and you could see that you sold $700 worth of product as a result of that newsletter, here’s your formula:
$700 / $350 = 2.00
Then move the decimal point over two spaces, and you get 200%.
That would indicate that your newsletter was successful.
On the other hand, if you spent $350, and you only sold $100 worth of your new product, you might be disappointed. That formula looks like this:
$100 / $350 = 0.29
0.29 = 29% ROI
This type of marketing may not be a solid investment for you, because you lost $250.
HOWEVER, you need to weigh in some of the additional types of ROI!
Impulse Buyers and Fringe Benefits
In that last example, we looked at a newsletter that cost $350 to send, and resulted in only $100 of the new product being sold. But what if we also saw that our general sales went up $500 over last year’s sales? That would indicate that even though the new product didn’t do as well as we hoped, our newsletter still was effective!
$100 + $500 = $600
$600 / $350 = 1.71
1.71 = 171% ROI
Suddenly that looks a whole lot better than what it did initially! So don’t forget that even if your target result didn’t do what you thought, maybe you still have data that proves that it was successful!
Non-financial, but still Tangible ROI
Not everything we do can be measured by dollars. But there are other ways to see tangible results! The trick here is that you may not be able to lean on math formulas to show hard data, you may just have to open up a blank spreadsheet and start entering details so that you can see patterns. Here are a few of the non-financial, but still tangible ROIs:
-# new followers on social media platform
-# new names on email list
-# shares on social media platform
-# attendees at event
-# volunteers participating
That isn’t an exhaustive list! There could be any number of specific data items that you track for your business, and I’d encourage you to track in very specific ways so that you can gauge your ROI! What I mean by that, is don’t JUST track “how many people showed up to the event.” Also track how many people registered by the early bird deadline, how many people registered on time, and how many registered late. Or how many people signed up for your list from a specific opt-in. Or how many volunteers are repeat volunteers versus first time volunteers.
You might be surprised when you dig a little deeper – some things will turn out to be much better than you realize, and some will turn out to be much worse than you realize! You might see that you got 75 new names on your list, but then 55 of them immediately unsubscribed. That’s not the same solid result you thought it was at first glance! Or, if you look at data from one month to the next you might notice that annual data reflects increases and lulls at similar times each year, so some of the results you think you are seeing are just attributed to the annual trends.
These things are tricky, for sure, but what I want to encourage you to do is to look for patterns, not just the surface result. One former employer of mine was very proud of a letter she sent out for fundraising for the organization. She was so pleased with the results because that letter brought in far more than the other letters she’d mailed out previously. However, when I ran the formula on the expenses and results of the various letters, I was surprised to see that that “very profitable letter” actually brought in less than was spent to create and send it! When we just looked at the dollars coming in, it appeared to be highly successful. When we looked for the patterns, though, and dug a little deeper, we realized it was a loss for the organization, not a profit.
This is totally intangible, and it might even contradict your tangible results. But sometimes it is just more important to weigh the feel-good results of something than it is to ask if it made money. Besides, if you’re in the business of adding value and helping people, which I hope that you are, sometimes changing a life is just much more “profitable” than making a lot of money.
Don’t get me wrong – business is still business. We have to make a living. Having a profit goal is still essential. But it’s not always the answer.
There isn’t a clear measurement system for the feel-good ROI. But when someone thanks you for making their life better, or helping them in some way that was really small to you but huge to them, or even just comments some sweet message on social media letting you know that they appreciate you, save those things. Copy and paste them into a document and hang onto it.
Then when you are discouraged because your business isn’t growing as fast as you hoped it would, or someone says something nasty on social media, or you just don’t get the results that you expected from a certain launch, you can go back and look at those comments and messages.
You will be reminded that what you do matters. You matter. Your voice is unique and it is needed. You have something of value to give to the world.
No dollar amount in the world can replace that knowledge.
I’d love to hear from you! What are you finding: is something working great for you, or something not working well? Let me know in the comments below!