"Hi JKoo. I need help calculating my marketing ROAS/ROI. All of my team are talking about it but I don't know what it is or how to calculate it. Please provide me with the details so I can impress my friends and keep my job. Thanks, JKoo!"
Hi there— thanks for writing in!
“How do I calculate my Marketing ROI/ROAS?” is a question I get asked a lot. At its core, Marketing Return On Investment (sometimes called return on marketing investment, or ROMI,) is a measurement of how efficient you’ve been with your marketing dollars.
But before diving right into the details about how to calculate ROI, you need to outline what you’d like to measure.
ROI is all about figuring out what is (and is not) working, and getting insight into where to reallocate you marketing dollars. Do you want to view ROI by marketing channel? Campaign? Sales team? All of the above (and more)? Defining your core questions up front will help you design your analysis to highlight impactful and actionable insights.
Once you’ve clarified your specific question, it’s time to understand the important metrics. As marketers, we tend to think about clicks, CPA, CPC, etc. While those metrics are great for campaign management, it’s time to put on your CFO hat, and focus on two basic business metrics, revenue and spend.
Here’s where understanding you question really comes into play— you want to ensure that you are pulling revenue associated with the marketing programs/channels you are analyzing.
To do this you’ll need to dive into the world of attribution. Attribution is the practice of allocating credit (or revenue) across various marketing programs, channels or even touchpoints.
When calculating Marketing ROI, I think about attribution in three main areas:
A revenue attribution window is the amount of time prior to time of sale in which a touchpoint can influence the buying decision. Only marketing touches within the defined window should receive any revenue credit. Your window should line up with your customer’s buying cycle.
This is typically what comes to mind when marketers think about attribution— dividing revenue across your marketing touchpoints or channels.
Once you have an idea of all the marketing touches within a revenue attribution window (and any characteristics you’d like to be part of your analysis), you’ll need to apply an attribution model to allocate revenue credit.
There are many different attribution models you can use, but I suggest a multi-touch model (linear, time decay or position based) that will more effectively measure the efficacy of your programs across a customer’s buying cycle.
If there are multiple methods of acquisition in your business that can potentially overlap (such as a sales team), you’ll want to also understand how to attribute credit across the different teams.
There are different approaches you can take here: you may choose to include the other teams touches (such as sales calls or emails) within you touchpoint attribution model. You can also agree on revenue allocation percentages and simply apply those to the overall revenue shares based on a customer’s acquisition journey.
Once you’ve calculated the attributed revenue, you’re now ready to move onto the next side of our equation— attributed cost.
Similar to revenue, you’ll only want to include costs associated with the scenario you are measuring.
For instance, if you’re looking to calculate the ROI of a specific channel, you’ll only want to include spend from that channel. If you’re looking more holistically, then you may need to sum up/consolidate your spend numbers.
Calculating Marketing ROI/ROAS/ROMI
Now that you’ve done the hard part calculating attributed revenue and attributed cost, getting to marketing ROI is easy: simply divide your attributed revenue by attributed cost.
Marketing ROI/ROAS =Attributed RevenueAttributed Cost
Marketing ROI/ROAS is typically depicted as either a percentage or a multiplier. For example:
Marketing ROI/ROAS =Attributed RevenueAttributed Cost
Marketing ROI/ROAS =$300,000$100,000
Marketing ROI/ROAS =300% = 3X=
You can always attribute complexities to your analysis but hopefully this understanding of marketing ROI you to make much smarter decisions about the efficiency of your marketing programs.
Do you have any follow-up questions to ask Jkoo about measuring marketing ROI? Anything you’d like me to elaborate on? Let us know in the comments or email JKoo at askjkoo@adroll.com.
Last updated on August 16th, 2022.