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How to Measure ROI in Performance Marketing: Metrics That Matter

Performance Marketing

With intense market competition, optimal strategy implementation has become vital to keep the business afloat and witness steady growth. The digital canvas of today’s business is strongly intertwined with performance marketing.

Performance marketing is a typical result-driven marketing approach that is quite collateral to today’s digital marketing landscape that relies on pay-per-clicks and lead generation concepts. In this approach, the results can be quantifiably measured, and the evaluation of success rests on pillars of metrics like Return on Investment (ROI). There was never a better process than performance marketing to identify and analyze the impact of every penny spent on marketing.

Performance marketing will only work like magic once regularly measured and constantly monitored. As already highlighted, performance marketing depends on metrics as it is a quantifiable approach. Measuring ROI in performance marketing helps in multiple ways, the vital of which are to allocate appropriate budget to marketing campaigns (like Instagram ads) and to make accurate data-driven decisions for further company progress. Today, almost 72% of global companies attribute their business growth success to constant and comprehensive ROI evaluation.

Return on Investment (ROI) – Measuring Business Success Through Performance Marketing

One of the most effective techniques an efficient performance marketing agency uses to measure the effectiveness of the marketing strategies adopted by businesses is calculating the ROI or Return on Investment.

Return on Investment or ROI is a basic comparison of how much profit a particular business strategy could yield compared to the cost of implementing that strategy. It is one of the crucial components of any marketing campaign and evaluates whether the marketing efforts are helping the company improve. A responsible digital performance marketing agency uses multiple data-driven strategies for the smart evaluation of ROI. It can also be described as an accurate measure of the impact of any marketing initiative on the net profit and revenue growth of the company.

Several roads lead to the destination of ROI calculations in performance marketing. For any of the processes, the performance marketing agency takes into consideration three vital metrics –

  • Total Revenue: The total money generated from any marketing campaign
  • Gross Profit: The difference between Total revenue and the cost to deliver a product
  • Net Profit: Additional Expenses deducted from the Gross profit

It is important to note that these metrics should be tracked consistently rather than on a one-time stance.

For ROI calculation, you can use either of these two approaches:

  • Return on Investment = (Sales Growth – Marketing Cost) / Marketing Cost

*Taking into consideration that the sales growth is directly associated with the marketing performance

  • Return on Investment = (Sales Growth – Organic Sales Growth – Marketing Cost) / Marketing Cost

The second approach is more holistic and realistic as it considers multiple real-time data aspects that considerably affect the final ROI determination.

Measuring ROI in performance marketing is also conducted based on the following metrics:

  • Customer Lifetime Value (CLV): It is the long-term value that customers will acquire through performance marketing. It shifts the solo focus from immediate gains.
  • Return on Ad Spend: This metric measures how much the company earns for every buck spent on ads. A ROAS of 6:1 would mean that for every $1 spent on ads, the company gains $6.
  • Cost Per Acquisition: The amount of money a company spends to acquire and retain customers. It is highly dependent on how competent and convincing the marketing campaigns (Facebook ads or Google ads) are.
  • Conversions: Lastly, the best way to measure the ROI of performance marketing is to track the resultant actions of a marketing campaign like app downloads, purchases or submissions.

 

Wrapping It Up

Usually, the big companies consider a thumb rule of 5:1 ROI to be competent enough to be in the race. ROI is not only an efficient tool to gauge a business’s profits; it is also an indicator of the panoramic health of the company and its track of progress. ROI paves the way for deeper analytical insights into the business that will form the pedestal of crucial business decisions in the future.

Do you want to know more about performance marketing, or are you planning to hire a performance marketing agency in Sydney? Well, we can be a good match! Get in touch with us today.

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