Is Your Marketing Working for Your Small Business?

Digital Marketing

Jun 13

Running a small business is a lot.

Between managing inventory, providing A+ service, and keeping up with the daily grind, it's easy to wonder – is all that time and money I'm spending on marketing actually paying off?

Here's where Marketing ROI (Return on Investment) comes in.

It's like a report card for your marketing efforts, showing you if your strategies are translating into sales and growth for your business.

Don't worry, you don't need an advanced degree to understand it!

Think of it like this: Imagine you own a local pet store. You spend $150 printing flyers with puppy pictures and distribute them around town.

If 10 new customers come to your store because of those flyers and each spends $50 on pet supplies, you made $500!

That means your marketing efforts are working great! ($500 earned - $150 spent on flyers = $350 profit)

This simple example demonstrates the power of Marketing ROI.

But how do you actually measure it and use it to improve your marketing strategy?

Let's break it down into easy-to-understand terms, explore some key metrics, and provide actionable tips for small businesses.

Understanding the ABCs of Marketing ROI

Marketing ROI helps you answer a crucial question: Are my marketing efforts bringing in more money than they cost?

By analyzing this data, you can identify what's working and what needs improvement, allowing you to make smarter decisions about your marketing budget.

Here's the basic formula for calculating Marketing ROI:

Marketing ROI = (Total Revenue Generated from Marketing Efforts - Total cost of Marketing Efforts) / Total cost of Marketing Efforts x 100%

While the formula might look intimidating, it boils down to a simple concept.

You're calculating the net profit generated from your marketing investments.

A positive ROI indicates that your marketing efforts are effective, while a negative ROI suggests you need to adjust your strategies.

Important Note: Marketing ROI is a long-term metric. Don't expect immediate results, especially if you're building brand awareness or nurturing leads. However, consistent tracking and analysis will help you refine your approach over time.

Key Metrics for Marketing Your Small Business

Now that you understand the core concept of Marketing ROI, let's explore some key metrics that will help you evaluate your marketing efforts:

Cost Per Acquisition (CPA): This metric reveals how much you "spend" to acquire a new customer. A lower CPA is better, indicating you're acquiring customers for less money.

Here's how to calculate CPA:

CPA = Total Marketing Spend / Number of New Customers

Let's say you try a new online ad campaign for your pet store and it costs $100 total. If 4 new customers find you from that ad, your CPA would be $25 per customer.
Customer Lifetime Value (CLV): This metric goes beyond just acquiring new customers. Think of it like having a loyal customer who keeps coming back to your pet store!

CLV tells you how much money a customer might spend with you over time, including repeat purchases, additional services like grooming, and recommendations to friends and family.

Knowing this helps you determine how much you can invest in acquiring new customers.

Here's how to calculate CLV (a simplified version):

CLV = Average Purchase Value x Number of Purchases per Year x Average Amount of Years a Customer Stays with You (or their Customer Lifespan)

Let's say your average customer spends $50 per visit and shops with you 2 times a year for 3 years on average. Your CLV would be $300!

Understanding your CLV helps you justify spending more to acquire customers who are likely to have a long-term relationship with your business.
Return on Ad Spend (ROAS): This metric specifically focuses on paid advertising. It tells you how much money you make for every dollar you spend on advertising.

A higher ROAS is better! Imagine you spend $200 on a social media ad campaign promoting your new line of dog leashes and it brings in $800 in sales.

Your ROAS would be 4 because you made $4 for every $1 you spent on the ad.

Here's how to calculate ROAS:

ROAS = Revenue from Ads / Cost of Ads

By tracking your ROAS for different advertising platforms and campaigns, you can identify the most cost-effective ways to reach your target audience.
Conversion Rate: This metric represents the percentage of website visitors or social media followers who take a desired action, such as making a purchase, signing up for a newsletter, or downloading a white paper.

A strong conversion rate signifies that your marketing efforts are effectively guiding users towards taking the actions you want them to take.

In essence, ROAS focuses on the financial efficiency of your advertising spend, while conversion rate measures the effectiveness of your marketing materials and website in converting interest into action.
Here’s how to calculate Conversion Rate:

Conversion Rate = (Total number of conversions / Total number of visitors or interactions) x 100

For example, let's say you run an e-commerce website and you want to calculate your conversion rate for a specific month.

During that month, you had 1,000 website visitors and 50 of them completed a purchase (conversion). Your conversion rate is 5%.

In today's competitive marketing landscape, understanding and optimizing both your marketing is essential for success.

By analyzing this data and implementing strategic adjustments, you can ensure your marketing dollars are working hard for you.

Remember, a high conversion rate from low-cost advertising platforms creates a winning formula for maximizing your return on investment.