Understanding return on investment (ROI) in marketing is essential, but there are a lot of misconceptions about what actually drives it.
If you’re trying to maximize your ROI, here are the five biggest factors you need to consider.
1. Industry and Price Point
Not all industries operate at the same price point, which plays a major role in determining ROI. A product or service priced at $65 will naturally have a different ROI compared to one priced at $200, $1,000, or even $30,000.
Profit margins matter. Higher margins provide more financial flexibility, allowing for longer ad campaign runways before dipping into negative returns. Lower price points often result in lower ROI because there isn’t enough financial room to allow campaigns to reach new customers before losses start accumulating. Whether it’s paid or organic traffic, acquiring customers costs money, and higher-margin products and services give you more room to absorb those costs.
2. Advertising and Marketing Channels Used
Every marketing channel comes with different costs and intent levels. Here’s how they stack up:
- Google Ads: Higher intent traffic, but at a higher cost. Users searching on Google are further down the sales funnel, making conversions more likely, but the traffic cost do tend to be higher.
- Facebook & Instagram Ads: Typically lower-cost traffic, but also lower intent. These platforms are great for brand awareness but may not drive immediate conversions.
- YouTube, LinkedIn, and TikTok Ads: Excellent for visibility but come with longer sales cycles. Users on these platforms are not always actively searching for a solution, making their journey to purchase less predictable.
Google Ads often shows a higher ROI because search users are actively looking for what you offer. However, social media platforms are still highly effective for getting your business noticed early in the buying cycle and do contribute to long-term ROI growth.
Consider this scenario – a lot of users will see a business’s ad on either Facebook or Instagram. However, they will not click the ad. Instead, they will either:
A. take a screenshot of the ad and store it for later viewing, and probably research the company further. Or,
B. they will Google the business name of the company running the ad, to view more information on their website.
In either case, while the initial contact was driven by the Facebook/Instagram ad, Google will ultimately be given the “credit” as the channel or ad platform that drove the user in as a lead/sale.
3. Business Model and Customer Onboarding
Your business model plays a significant role in how quickly and efficiently customers convert. Some businesses make it easy for customers to get started with free trials, consultations, or quotes. Others have more rigid onboarding processes, which can slow down conversions and lower ROI.
In general:
- Easy onboarding = Higher ROI (Free trials, instant sign-ups, seamless checkout processes)
- Complex onboarding = Lower ROI (Lengthy approvals, high upfront costs, or complicated buying processes)
Reducing friction in your customer journey can significantly improve your ROI.
4. Promotions and Offers
Running promotions, discounts, and financing options can directly impact your ROI. When you run limited-time offers, you’ll likely see a spike in conversions, boosting your ROI. However, during non-promotional periods, your ROI may dip.
To maintain consistent performance:
- Regularly test promotions and discounts.
- Use seasonal or event-driven sales to attract customers.
- Monitor which offers drive the highest conversions and optimize accordingly.
5. Tracking and Attribution
One of the most overlooked but critical factors in ROI measurement is tracking. Without proper tracking, you can’t accurately assess which marketing efforts are working.
Key tracking components include:
- Website Analytics: Ensure you’re tracking traffic sources, conversions, and lead generation accurately.
- Call and Form Tracking: If leads come through phone calls, live chats, or form submissions, make sure you know which channel they originated from.
- Internal CRM Tracking: Track leads from first contact to final sale to measure the actual return on your marketing spend.
Many tools can help streamline tracking and attribution, providing accurate insights into your marketing ROI.
Final Thoughts
Maximizing ROI requires a strategic approach that considers industry pricing, marketing channels, customer onboarding, promotions, and tracking. By optimizing these five areas, you can improve the efficiency of your marketing spend and drive better results.
For more insights, stay tuned for upcoming posts where we’ll break down specific strategies and tools to enhance your marketing ROI.