When will marketing investments pay off? All about planning, forecasting and ROMI

There are no telepaths in the Solve Marketing team yet… . But, despite this, we know what every entrepreneur thinks about when they seek the services of marketers. “How much will I get from my investment?”. “How quickly will I achieve payback?”. And these questions are quite reasonable, because who wants to waste money?

To predict the results for our clients, we literally create a profit plan and then calculate the ROI of marketing. Reaching marketing ROI is not just an indicator, it’s a strategic goal for every business’ marketing. At the same time, this approach to evaluating results is most appropriate when planning long-term cooperation. 

Read the article to find out:

— What is marketing ROI and how to calculate it?
— What role does planning and hypothesis testing play in achieving ROI?
— When will you get your money back? We will talk about forecasting.
— How does it all work in practice? We will show you a case study of our client.

What is marketing ROI and how to calculate it?

Let’s start with the main thing — defining the concepts.

ROMI is responsible for determining the rationality of marketing investments. You may also have heard of ROI, which is responsible for the overall return on investment.

The ROI formula means return on investment. And the letter M in the ROMI abbreviation is responsible for determining the profitability of business marketing efforts.

In other words, ROMI is the main indicator of return on marketing investment. By calculating this indicator, you can determine how much money your campaign brought you compared to the costs of it.

To determine the ROMI, you need to subtract all the expenses associated with this process from the revenue generated by marketing efforts, divide the resulting number by the expenses, and multiply it by 100 to convert it into a percentage.

The example will look like this:

ROMI = ($1 200 – $700) / $700 х 100 = 71%.

Where $1,200 is the revenue generated by marketing activities, and $700 is the marketing costs.

By calculating ROMI, you can truly assess the degree of return on your investment both in a single advertising campaign and in marketing in general. You will receive clearly measurable data that can be used to adjust your strategy to achieve your goals and optimize your expenses.

However, ROMI alone is not enough. To get a complete picture of the ROI and achieve the planned KPIs, you need to consider a wider range of indicators: conversion rate, CAC (cost of customer acquisition); LTV (customer lifetime value), etc..

Learn more about LTV in our article ‘Philosopher’s Stone of Business: How to Calculate LTV and Extend the Life of a Customer’.

When analyzing the results of promotion, you need to take into account the peculiarities of the niche, similar indicators for the previous period, as well as expectations. 

What role does planning and hypothesis testing play in achieving payback?

Before proceeding with the calculations, there are two important aspects to consider. The first is defining business goals that will become the focus for marketing. The second is planning actions to achieve the set goal. Without a strategic approach, you will not have enough data to calculate the formula, and it will be impossible to achieve the goal as a result of chaotic marketing activities. Therefore, you need to start with goal setting and planning.

Your task is to think about why the company needs marketing, what you want to achieve with it. Set measurable goals, for example, to increase sales by 20% compared to the previous month. 

But you can’t just build marketing around your own feelings and preconceived notions. In most cases, your action plan is based on hypotheses. And every hypothesis needs to be tested — you need to test it before you can act with confidence. In order to make a profit as soon as possible, you need to find an effective combination of marketing channels, tools, audiences, and offers in your niche and for your project. And most importantly, you need to base your strategy on facts and analytics data.

To calculate the investment in attracting the right number of leads, marketers need objective indicators for the previous period: the cost of a sale or cost per lead and the percentage of conversion to a sale. If these indicators are known, you can immediately start forecasting the achievement of your goal. But what if they are not, or if the previous results are considered poor? Then the marketer generates certain hypotheses and needs to test them. The ultimate goal of hypothesis testing is to obtain the necessary amount of data and determine the cost per sale. Later, this data is taken into account in forecasts and calculations.

For example:
We know that the cost of a sale for the previous month was $10, and the client received 200 sales last month. For this month, the goal is to increase the number of sales by 20%. Let’s calculate the advertising budget:

$10 x 200+200 x 0.2 x $10 = $2400 

When making this calculation, it is important to take into account seasonality and the fact that when sales increase, the presence increases, but the number of target audience does not. Because of this, the cost per sale may increase.

Hypothesis testing can also be conducted to reduce the cost of the final sale. For this purpose, sales funnels, landing pages, creatives, texts, calls to action, and target audience segments can be tested.

Based on the approved goals and calculations, marketers can set clear objectives and KPIs (key performance indicators) to measure the degree of achievement. For example, the task may be to launch an advertising campaign to attract new customers with a KPI of increasing the number of sales through the website by 30% within a month.

So, what works 100% for one business may be a losing proposition in your case. To avoid this, you need to evaluate ideas, check assumptions, and make clear calculations. Professional marketers carry out promotion in a comprehensive manner: they research the market, study the interests of the target audience, generate hypotheses, test them, and only then build their strategy on the obtained results. 

Also, don’t forget that not all marketing actions have a direct, obvious and quick impact on the result. Therefore, you shouldn’t be surprised when a marketer adds packaging and brand promotion, positioning development, or website refinement to the strategy. This all plays an important role in achieving the overall goal. Yes, it’s harder to feel the result of working on these areas. But this is only because such solutions work for the long term and affect the conversion rate indirectly.

Solve Marketing’s remote department can provide a comprehensive approach to your request to ensure that you get the highest possible ROMI.

When will you get your money back? A little bit about forecasting

When you invest in your marketing, you don’t have to wait in the dark like Hachiko. There are forecasting methods to determine the reasonableness of investments and possible profits.

Every business owner wants to know what benefits they will receive if they invest a certain budget. But what is needed for this? To calculate its benefits, a business must take data collection and analytics seriously.

It should be noted that the forecast at the first stages is not a guarantee of specific payback figures, but only an indication of possible prospects. 

To make payback forecasts more or less realistic, you need to have the following data: 

• a measurable goal;
• market analysis;
• competitor analysis;
• analysis of historical project data (both from the client and from tools such as Google Analytics);
• test results.

Only then is a media plan developed, in which specialists calculate the cost of attracting an application or the cost of a client or sale (depending on the project goals) and use this as a component of the KPI. If the client also provides margin figures, you can calculate the return on investment to immediately understand whether the chosen approach will work or not.

Does the forecast and the reality coincide in the end? In the forecasting process, the Solve Marketing team provides objective results so as not to mislead or raise client expectations. We emphasize once again that the media plan data is a forecast, so the actual results after the launch of advertising campaigns may differ significantly. Unfortunately, it is impossible to accurately predict all the data due to a number of factors. But forecasting gives you an understanding of the overall picture.

To improve the accuracy of your forecasts, systematically collect comprehensive data. The more detailed and broader the analytics data you have, the more accurate your estimates will be. Collect information about the channel used for marketing campaigns, customer acquisition expenses (Cost per Click, Cost per Lead, Cost per Impression, etc.), specialist expenses, etc. And marketers, in turn, will build the most accurate forecasts based on them.

How does all this work in practice? Our client’s case study

Back in 2018, Solve Marketing started working with a SaaS project. As expected, we started by identifying the needs and the goal, which was to increase the number of users of the service by at least three times.

Our team transformed this goal into an action plan with specific tasks and performance indicators. We also conducted market research and started implementing. 

As part of the service, the agency’s marketing department worked on: 

• lead generation through various channels; 
• social networks;
• newsletters; 
• analytics and customer retention. 

At each stage of the work, we collected all possible data to present the client with the results of their investments. The project analysts collected analytics using Google BigQuery and pre-built dashboards in Power BI. This helped automate the analyst’s work and remove the human factor from the process. The collected data made it possible to: 

• track the results of each advertising campaign and the changes implemented; 
• flexibly adjust the strategy of advertising budget allocation by country;
• clearly understand the seasonality and the need for additional sales promotion depending on the season, country, and information reasons;
• and much more.

Here’s what we got.

• The average ROMI excluding LTV is 370%. That is, for every dollar invested in the advertising budget, we earn an additional $3.7.
• The average CAC (Cost of Customer Acquisition) in the US is $40.
• More than 1000 new paid subscribers per month.
• MRR of the project is over $500,000. 

Hard work and a serious approach to data collection and analytics allow us and our client to be inspired to continue working with effective results.

You can read the entire case study here.

Conclusions

Every entrepreneur wants his or her investments in marketing to not only pay off, but also bring in additional profit. And so it should be. 

Unfortunately, when implementing marketing activities, the importance of end-to-end analytics and marketing return on investment (ROMI) are often neglected. ROMI is responsible for assessing the effectiveness of your marketing. 

But this indicator is determined after marketing activities have been carried out. What about before? Before that, there is forecasting.

But in reality, it’s impossible to predict the return on marketing without a goal, analytics, strategy, and testing, and it’s more like guessing on coffee grounds. Therefore, if you already want to know the answer to the payback period when you first meet a marketer, think about whether he or she has a basis for the answer.

We, as a professional remote marketing department, work together with our clients to ensure that investments in promotion bring great results and meet all expectations. That’s why if you choose Solve Marketing, your business will receive a strategic approach and planning, detailed analytics for each stage of work, and profitability forecasts. Most importantly, all these efforts will bring you profit, and the costs will not be in vain. Fill out the form and get your first consultation for free.

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