An investor in a stock market should run according to two basic principles. He should buy the stock at cheaper prices and sell stock at higher prices. That is the simpler thing to understand. The difficult thing is to understand at what point a particular stock is at its cheapest and at what point is it at its highest.
When you are carrying out a marketing campaign, the situation is simpler. To get a good ROI (return on investment), what needs to be done is to minimize the cost of running the campaign, and maximize the income generated by the campaign. That much is pretty much clear to everyone. What becomes difficult is to ensure that both these can be achieved, so that the ROI is improved. Let us try to look at some of the ways in which the ROI of a marketing campaign can be improved.
Know What to Measure
Like I said at the beginning, most people who talk about improving ROI know that they need to get higher ROI. But they are not always sure how to measure and more importantly, what to measure, in order to understand if their ROI is increasing or not.
The simplest way of calculating ROI is to calculate the additional sales growth, and after subtracting the cost of the campaign, dividing the remainder by the cost of the campaign. So for this simplistic formula, the cost of the campaign is an easy enough number to know and use. The problem comes when you need to calculate the additional sales. The reason for this is because the sales figures for a particular period might not clearly tell you whether they would have happened anyway, or they happened because of the campaign. That is why many companies find some way to flag off sales that came from the campaign so that ROI is easier to calculate.
Aim To Be Steady, Not Slow
For a new business, there is often a temptation to do everything all at once, so that breakeven can be achieved in the first few months or in the first year. While that does sound glamorous, it is not always practicable. There are two reasons for this.
The first year of existence usually sees several initial fixed costs which wouldn’t be needed in the subsequent year. Second, it takes time to create a loyal customer base, which might not always happen in the first year. Since you know that the first year might be slow, plan your marketing activities accordingly. Don’t put all you have got right away. Do what is absolutely necessary, but keep something aside for later too.
If you can keep your marketing expenses low in the first year which would be slow for revenues as well, the ROI is likely to be respectable. Play it steady, and as your business finds its feet, pump in more resources into marketing. Some of those resources might also be possible to be funded by your business profits if you hold on for a few months or a year.
Target Right
ROI would be good only when the targeted customers actually bring in revenue. I do agree that a marketing campaign can’t always be perfectly defined to target only those prospects who would be converted into customers. But the more the ROI is tracked, the more you can learn what actually brings you results. So this is a self-sustaining cycle.
A higher ROI gives you insights about whom to target in the next cycle, which in turn would provide higher ROI. Marketing can never be exactly a quid pro quo, where efforts are exactly compensated. But you must do the best you can to reduce the expenses on segments who are not profitable.
Segment Better
As a business grows, it would attract more varied customers. Also, as the business matures, the prospects who are being targeted for new business would also become more and more different from each other. And finally, when the business grows, the products and services offered also change and become more broad-based.
Because of these 3 reasons, no business can afford to continue with the same messaging and the same marketing strategy for all customers all the time. The entire set of existing clients and future prospects needs to be segmented according to criteria the business owner deems best. It could be on the basis of demographic criteria, purchasing power, depth of relationship, history of transactions or any other which is more relevant. A one size fits all marketing strategy can’t ensure increasing ROI.
Control Costs
I started off by saying that the ROI of any marketing campaign is based on the cost incurred and the revenue generated. While the revenue generation might not always be in the hands of the business owner, the cost of a particular campaign always is.
Before you rush headlong to pour money into glitzy campaigns, take a step back and see what the ways of marketing at low costs are. There is also a lot you can do at no cost. Side by side with paid campaigns, purchased databases and other usual marketing campaigns, also explore ways to push your brand online and otherwise at lesser expenses. The flip side of reducing costs is to increase your revenues, as I explained at the beginning.
This can be done by increasing prices. Business owners are loath to jack up their prices too much, fearing loss of market share. But if you are confident of your product quality you should know that many consumers associate a higher price with higher quality. A higher pricing structure will make your ROI calculations more favorable.
Measure Right
I started off by saying that a business owner should be aware of what to measure, and I will end by saying that a business owner should be able to use the right metrics to assess the ROI. Firstly, there should be some kind of tagging to allow you to identify which campaign a particular chunk of revenue came from.
Many companies run an entire campaign using a different URL, due to this reason. Second, there are many tools which provide useful indicators, and many of them are free for use. And finally, try to avoid vanity metrics (like a number of likes, shares or retweets) which might sound impressive to others and make you feel good but do not actually measure the revenue.
Closing Thoughts
Whether you are starting a new business or have already spent a few years setting it up, the need for marketing can’t reduce (even Mercedes still advertises!). What is needed is to make your marketing campaigns provide better returns as your business matures.
Also Read: How Database Help Grow your Business!