Why it's important to set marketing investment benchmarks
- Setting a benchmark for your marketing investments is crucial to understanding ROI, both on a per-campaign level and also when evaluating your marketing strategy as a whole.
- In general, a good marketing ROI is one that achieves a 5-1 earnings-to-expense ratio. This means that for every $1 you spend on marketing, you generate $5 in revenue.
- In most cases, the metric you want to track is the revenue attributed to your marketing campaigns.
Every cost a business incurs is intended to build toward revenue growth. Sometimes the return generated from those costs is indirect, such as new employee hires that increase your productivity and the quality of your work.
With marketing, though, the relationship between costs and revenue is more direct. Thanks to analytics and marketing attribution, businesses can draw a clear line between marketing costs and their return on investment (ROI).
A marketing investment benchmark plays a crucial role in this calculation, and it can support strategic decisions and optimizations to improve marketing content performance over time.
Marketing investment benchmarks: The basics
Setting a benchmark for your marketing investments is crucial to understanding ROI, both on a per-campaign level and also when evaluating your marketing strategy as a whole. A benchmark is a metric or measurement taken at the start of a process, designed to serve as a baseline from which you can compare your performance over time, especially if you’re implementing new strategies, increasing budgets, or making other major changes to your marketing approach.
Let’s say you’re adopting A/B testing to track your social media campaign performance and identify best practices to optimize your posts for engagement. But the A/B testing software you use costs money, so you need to generate returns that surpass your technology investment. By setting a marketing benchmark based on performance metrics leading up to this A/B testing rollout, you can track improvements over time and calculate whether you’re getting the kind of marketing ROI you were hoping for.
Wondering what a good marketing ROI looks like? The answer can be complicated, and it can be affected by a number of variables — and marketing ROI for specific channels will always vary from one to the next, no matter how persistently you optimize your campaigns. In general, though, a good marketing ROI is one that achieves a 5-1 earnings-to-expense ratio. This means that for every $1 you spend on marketing, you generate $5 in revenue.
If you aren’t hitting that benchmark, don’t worry. The 5-1 ratio is a goal you can build toward by using benchmarks and incremental changes to improve your spending and drive better returns for your investment.
Benefits of using ROI benchmarks
Benchmarking is a simple but reliable tool for measuring performance over time. And when benchmarking is set up correctly, it can deliver a number of useful benefits spread across your marketing performance, your marketing strategy, and even your relationships with management or investors.
The most common benefits of ROI benchmarking include:
- Quantifying both hard and soft ROI: With attribution tools and professional marketing analytics in place, marketing departments can evaluate revenue based on concrete data, such as sales and new customer acquisitions, as well as soft data, such as brand visibility and customer satisfaction. With soft ROI, it helps to have broad access to call tracking software and other tools generating data that can inform accurate attribution.
- Generating insights to optimize marketing mix: By identifying your top-performing marketing channels and breaking down ROI ratios for each one, you can improve your ROI just by adjusting your marketing mix and track that revenue growth through your investment benchmarks.
- Informing strategic decisions on a per-campaign and per-channel basis: Macro trends across your entire marketing strategy can be tracked through ROI benchmarking, but campaign- and channel-specific earnings performance can also benefit from this strategy.
- Identifying simple calculations to justify costs to decision-makers: Management wants to see marketing budgets put to good use. This is especially true if you’ve campaigned for additional spending capabilities, or fought for the acquisition of software to improve marketing performance. Benchmarks offer a clear, simple tool that helps you communicate in the language that matters most to business leaders: revenue and profit.
Choosing the right marketing ROI benchmarks
The value of your marketing investment benchmarks is largely determined by the metrics you choose as your benchmarks, and how those metrics reflect marketing performance. Marketers already use key performance indicators to evaluate the success of their campaigns, so it comes as no surprise that your metrics are determined by your goals.
With marketing investment benchmarks, your goal is to generate a positive return on your spending. Here, the metric you want to track is the revenue attributed to your marketing campaigns.
Your baseline benchmark, then, is the attributable revenue your marketing is generating at the start of whatever time frame you’re tracking. This can be calculated as a dollar amount, or as a percentage or ratio of revenue relative to marketing expenses.
If you want to set a benchmark goal in the future, you can establish that as well. Just be careful to set a benchmark that is reasonable given your current situation. If your marketing is currently generating a net loss, you probably can’t count on achieving that 5-1 ratio within the calendar year. But turning a small profit could be an excellent benchmark to target.
Set goals that are motivating, rather than discouraging. During the goal-setting process, it might be helpful to open up goal-setting to other members of your marketing team, as well as management, and select goals that everyone believes are both challenging and achievable.
Tracking results and calculating marketing ROI
Although benchmarks may be a critical part of evaluating performance, tracking and calculating marketing ROI can be pretty straightforward. Once you’ve chosen the metrics you want to use as your marketing benchmarks, as well as the time frame over which results will be tracked, you can use the starting point and endpoint of your benchmarking time frame to compare your investment returns and revenue growth over time.
For example, let’s say your marketing-attributed business revenue is 200% of your marketing spending at the start of your benchmarking time frame. That’s a 2-1 ratio — a nice profit, but still below most companies’ standards for marketing performance.
Over the next six months, you implement changes to your marketing strategy, including a revised marketing mix and a number of campaign-specific changes. Six months later, your revenue has risen to 270% of your spending — a ratio inching closer to 3-to-1. This demonstrates 70% growth in marketing revenue in just six months, which is a tremendous result that will likely satisfy management and justify your current marketing strategy.
As you continue to benchmark to track revenue, an analytics platform can help you visualize this data and uncover additional insights to guide continued optimizations to your marketing strategy.
Successful marketing is all about refining your strategy over time by leaning into the tactics that work and fixing, or dropping, marketing efforts that aren’t meeting your standards. With marketing investment benchmarking, you can keep ROI top of mind to ensure that your marketing strategy is meeting the most important goal of all: bringing in new revenue for your business.