Details: Marketing Strategy

Marketing Return on Investment: What is a Benchmark Average and What Marketing Methods Have the Best ROI?

In this blog article and podcast we are going to talk the return on investment from different marketing methods. We will discuss the industry ROI averages for different methods and give a conclusion on which method has the best ROI. At the bottom of this blog post, we point out what marketing method has the best average return on investment.

Executive Summary

- According to Neilsen, the average marketing return on investment is $1.09.

- The top 3 marketing media with the highest average return on investment are roadside signage, email marketing, and search engine optimization.

- Tracking the source of sales to be able to calculate return on investment from your marketing initiatives is critical to being able to improve the effectiveness of your marketing spending.

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What are the Main Marketing Methods?

Marketing can be done through many different vehicles and mediums. Not every medium will have the same result or cost. As such mediums need to be compared and evaluated in order to learn what is best for your business. In this podcast, we are going to look at a report from Neilsen Research which analyzes which mediums are most effective for marketing:

Paid online advertising
Promotions/Price Discounts
Magazines
TV advertising
Outdoor ads
Newspapers

The chart below lists the major marketing methods that the vast majority of businesses will consider utilizing. We have also added the following mediums to review:

Search engine optimization
Email marketing
Direct mail marketing
Trade shows
Roadside Signage
LinkedIn Ad

marketing method return on investment

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Comparing Marketing Methods

neilsen roi 2009 data

The Nielsen Company has done a great deal of research comparing different marketing methods in relation to the ROI that can be expected from them. The following chart (right side of the page) illustrates the average ROI that can be expected.

One will notice that search engine optimization is not listed on the chart (it is unique from online ads). Profitworks has found the average ROI of SEO services to be $2.75. The is a number that we have come to after working with dozens of different companies from a wide range of different industries. We monitor the ROI of our SEO services every week in order to ensure our clients are getting the best value for their marketing budget.

A $2.75 ROI means that for every $1 spent, the company generates $3.75 (for a profit of $2.75). In percentage terms, this would be a 275% return on investment. When looking at the chart below you can see that Email marketing, SEO, and direct mail all have a very high ROI.

How to Measure the ROI of Your Own Marketing Activities

The first step to calculating the ROI of your own marketing activities is to start attributing a marketing method to each sale. This can be done by giving customers a choice of marketing methods at the checkout page or if you don't sell online it can be done by asking the customer how they found you and why they decided to buy at the time of purchase. Once you have this information you can calculate the sales and contribution margin attributed to each marketing method and calculate the return on investment for each method. To complete this calculation, you can use the formula below.

Marketing ROI = (Additional Profit From Marketing - Cost of Marketing)/Cost Of Marketing

Where Additional profit From marketing = Revenue from marketing - Variable costs of that marketing

And where Variable costs of that marketing = Revenue x Contribution Margin or Revenue - variable costs

For example

If we assume that $10,000 in sales were brought from magazine advertising and that the company has contribution margins of 40%, that gives an ROI of: [(10,000 x 40%)-500]/500 = 700% (Every $1 spent returned $7 dollars in profit after the cost of the marketing).

Different marketing methods excel in different campaign lengths. Some methods will take a few months to reach peak effectiveness while others will hit a peak immediately. Ensure you run and measure the campaigns for the right length of time, erroring on the side of measuring for too long a time period.

Increasing the ROI of Existing Plans

The same Nielsen report found that marketing effectiveness could be increased by 30-40% by taking a closer look at the specifics of each marketing method and adapting the strategy to focus on strengths and minimize weaknesses. Their guiding principles for maximizing ROI are:

Consider both the short and long term impact of a marketing campaign
Different marketing methods excel in different campaign lengths. Some methods will take a few months to reach peak effectiveness while others will hit a peak immediately. Ensure you run and measure the campaigns for the right length of time, erroring on the side of measuring for too long a time period.
Choose the right portals and campaigns for online success
Understand your target market on the web and focus on creating content and advertising to attract that specific demographic to your site.
Influence target groups with magazine advertising
Magazines have a clearly segmented target group (unlike newspapers, which are read by a wide range of readers). If a magazine's target group overlaps with your business's target group consider advertising with that magazine.
Focus on campaigns that generate the greatest halo effect
Marketing methods that increase sales are what really matters at the end of the day. Focus on methods that increase sales the most across the highest number of product lines.
Drive brand loyalty with TV advertising
TV/video ads are the best way to communicate brand information and build brand loyalty. For small or very targeted budgets try Youtube video ads.
Create synergies across media to produce additional uplift
The messages that your marketing is deploying must be consistent across all mediums. Implementing multiple media at the same time can cause a higher ROI.
Create brand awareness through in-store advertisements
An excess of discounts and promotions erodes a brand's quality over time. Focus on advertising your brand within your own store or website in order to continue to grow brand awareness instead of using discounts to drive sales
Invest in your customers with premium gift packs
Investing in your most valued customers has a short-term cost but can have a long-term gain. Increasing the perceived value of your services to your long-term customers is essential to keeping those customers. This can be done easily by offering additional services for free with a purchase or just giving them a small gift like a box of chocolates just to say thanks for being a customer.

Source: http://www.nielsen.com/us/en/insights/news/2009/maximize-the-return-on-your-advertising-spend.html

The Marketing Method with the Best ROI: Email Marketing

Email marketing has the highest ROI of 675% when compared with any of the other major marketing methods. An email marketing campaign with a business's website can be utilized to great success in order to increase sales and profits. To learn more about how to do email marketing click here.

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