Efficiency vs. effectiveness: The role of ROI in marketing today

Return on investment (ROI) is one of marketing’s more ubiquitous metrics. But that doesn’t necessarily mean it’s popular. Most modern marketers have a complicated relationship with ROI. On the one hand, it is a simple calculation that gives a rough sense of whether a marketing investment was worthwhile. On the other hand, ROI is a limited metric that has been known to lead to preemptive budget cuts and short-termism.

In this blog, we’ll look at calculating ROI, when it is a worthwhile metric to track and optimize towards, and where marketers feel it falls flat. 

What is return on investment (ROI)?

Return on investment (ROI) in marketing is a simple way to measure the efficiency of a particular campaign or initiative, or of marketing activities overall. The goal is to understand whether the output (marketing spend) was a worthwhile business investment. 

ROI is generally displayed as a percentage. For example, if your profits were equal to your marketing spend, your ROI would be 0%. Anything above 0% is generally considered to be acceptable in marketing, and anything upwards of 500% is considered to be exceptionally strong. 

How to calculate return on investment (ROI)

There are many ways to calculate ROI, but the simplest and most common is to divide the total marketing cost by the net revenue (revenue attributed minus the total marketing cost) and multiply it by 100 to get a percentage. 

For example, if the total attributed revenue from a campaign was $20,000 and the total campaign costs amounted to $5,000, our ROI calculation would look like this:

Sometimes, ROI will be calculated to get an assessment of marketing’s performance overall. In other words, a marketing team will look at their total spend for the quarter or year, and the total revenue attributed to assess the performance of the marketing function on a more macro level.

Whether it’s a campaign or marketing activity more generally, one of the biggest mistakes marketers make when calculating ROI is missing underestimating their expenses. Mike Hagley, Digital PR Lead at Carbar says, “Accurately measuring ROI for marketing campaigns comes down to keeping a close eye on your spending. The more detailed you are in tracking expenses, the better you can understand your returns. Break down costs into categories like ads, content, tools, and team hours to allocate them accurately to each campaign.” 

If there are no costs associated with content, tools, or teams and you are looking for a simple like-for-like comparison between advertising platforms, you might be better off tracking return on advertising spend (ROAS). ROAS is a similar calculation used to measure the return on investment from a campaign and is used more commonly by digital advertising platforms like Meta and media agencies. 

Benefits of using ROI to measure marketing success 

Measuring the ROI of your marketing campaigns and activities can be a great way to get a quick and straightforward understanding of which campaigns are performing best. 

This can help marketing teams to:

• Justify marketing spend and request additional budget
  A strong ROI clearly and simply proves marketing is having a positive impact on the profitability of the business, allowing marketers to justify their spending or request additional budget. 

• Analyze the performance of different marketing channels
  If you’re deciding whether to spend more with Google or Meta, for example, an ROI can give you a clear path forward. 

• Assess overall marketing performance
  ROI can be a handy way to assess the overall performance of your marketing efforts over any given period of time.

ROI is most reliable in limited-period digital campaigns where the attribution can be tracked directly. As Nick Musica, founder of sports site The Grom Life, shared, “In digital marketing, channels like pay-per-click advertising and email campaigns often allow for precise ROI measurement, as you can track conversions and attribute them directly to specific marketing spend.” 

In all other cases, tracking ROI is possible, but the accuracy is closely tied to the technology you are using. David Godlewski, CEO of SaaS company Intelliverse, shared, “One often overlooked aspect is the precision of data capture. When tracking tools are limited in their ability to gather detailed user behavior data, ROI measurements may lack accuracy. You must choose tracking tools that offer richer data and deeper insights. This allows you to precisely analyze which aspects of your marketing efforts contribute to ROI.

“Moreover, the timeliness of data is equally important. Outdated or delayed metrics can lead to misinformed decisions and inaccurate ROI assessments. Ensure that your technology stack provides real-time data and insights to help you make timely adjustments and optimize your campaigns promptly.”

Podcast

"Be relevant": How to leverage intent data to drive better outcomes

Listen now

What are the limitations of ROI? 

Most marketers are measuring ROI with some accuracy, depending on the channel and campaign. But most marketers also have frustrations with how one note ROI is — it simply doesn’t tell the whole story. 

The limitations can be summarized in three points: 

1. It is focused on short-term returns 

2. It relies on quantifiable metrics and financial outcomes, over things like brand perception 

3. Increasingly complicated customer journeys make it challenging to attribute revenue

Afiya Addison, Agency Development Lead at LinkedIn sums this up well in a blog titled The ROI trap, “marketers need to understand ROI is not an effectiveness metric. It’s an efficiency metric. And efficiency can be very dangerous.”

She gives the example of Kraft Heinz who, after being bought by a private equity company 3G, went through relentless cost cutting including slashed marketing budgets. For a few years, she explains, this strategy worked. But after years without investing in brand, sales started declining and continued to decline for six quarters in a row. Eventually, 3G had to write off $16B of value. The story has become a cautionary tale for brands too focused on metrics that rely on short-term returns, like ROI, instead of long-term growth, like brand perception and customer relationships. 

Alanna Gerton, founder of tech blog lanagerton.com and VP of Engineering at PinPoint Analytics, shared similar frustrations, “it's crucial to acknowledge that not all marketing campaigns are created equal, and not all can be accurately assessed solely through ROI metrics. In one instance, I managed a branding and awareness campaign aimed at building long-term brand equity. While the campaign was undoubtedly impactful, ROI measurements didn't tell the full story. The goals were more abstract, focusing on enhancing brand perception and customer loyalty rather than immediate sales. In such cases, ROI calculations might be less relevant or even misleading. Instead, we relied on metrics like brand sentiment, customer engagement, and brand recall to gauge the campaign's success."

Sudhir Khatwani, Founder of The Money Mongers, agrees. “Sure, ROI is a solid metric to gauge a campaign's success, but it's not the be-all and end-all. There's a whole world of qualitative elements, like boosting brand perception or fostering customer engagement, that might not show up in your ROI calculations.”

Final word: ROI is a small piece of a very large puzzle

In marketing, ROI can be a useful metric for quickly comparing different platforms or campaigns, and it is a performance indicator that finance teams look to when approving marketing budgets. But to really succeed, marketing departments and business leaders need to have a wider and more long-term view of performance that includes effectiveness (brand perception and awareness, customer experience) in addition to efficiency (ROI and ROAS). 

Stay up to date with the latest insights

By submitting this form you agree to ourterms of service & privacy policy.