How Marketing ROI should determine your budget

The dreaded three letter acronym that all marketers dread… ROI. Marketing ROI doesn’t need to be scary. It’s a great metric (when used right) to help determine and secure your budget, build alignment with sales and benchmark your overall performance as your business grows. 

What is Marketing ROI

Marketing ROI is a straightforward metric to measure. This is how you work it out:

ROI is calculated like this: your spend £ / your closed won £. 

Example: If you spend £200 and you closed £100 your ROI is 50p – that is an ROI of .5 so for every £1 you spend you are making 50p back. 

However, although it’s simple to work out, there is a key element missing in this calculation that indicates whether your ROI is at the right level for your business and that’s taking into account how many years you’ve been marketing. 

There are a few factors to consider when trying to benchmark your ROI, which is particularly important for B2B SaaS companies:

• Fast growth –  these businesses will be putting a lot of coal on the fire to ramp up either potentially towards going public or exiting, this might make their marketing ROI look amazing if they are selling like hotcakes because they are able to dominate digital spaces (because they can afford to!) OR it’ll look atrocious because they are burning through cash in order to gain digital real estate which takes time.  
• Moderate growth – for these businesses their ROI might look quite steady and stable because they aren’t ramping up with the acceleration of really fast growth organisations, but as soon as they begin to ramp up it could start to look like marketing isn’t working in the same way. 
• Just getting started – when a business starts marketing their ROI will potentially look good, because making those first baby steps will no doubt attract attention, but as these businesses begin to scale their ROI could fall off a cliff edge as they put more cash behind their efforts. The more you spend, the longer it can take to get your ROI.

How should Marketing ROI impact your budget?

By tracking your Marketing ROI overtime this is a good indication for how much you should be spending depending on your growth targets. 

For example, if you have an Excellent ROI of 2 (which means for every £1 you spend you make £2 back) and your growth goal is to double YOY this means you will need double the Marketing budget to meet your revenue goals. 

Marketing ROI Trends

ROI is important to track on a monthly, quarterly and yearly basis but it’s also important that overtime you become aware of any trends you see with your ROI, don’t let these potential red herrings impact your marketing budget:

• Seasonality - if your business is impacted by seasonality you’ll see your Marketing ROI during those months go through the roof or drop off a cliff edge, it’s important to note this and report this back to your key stakeholders so you keep a balanced view. 
• New products - If you launch a new product this might impact the stability of your ROI will you ramp up to start selling. 
• Target markets - If your target market changes, or you decide as a company to start, for example going after Enterprise size organisations your ROI will look pretty dire while you get your ducks in a row, it’s important you’re all prepared to take the hit but not take the foot of the gas when it comes to your marketing. 
  

Marketing budget timing 

Another key aspect to consider when it comes to your marketing budget is getting your budget on time! So if your targets are doubling as of April 1st and your sales cycle is, for example, six months, you’ll need that extra dolla six months in advance or at least start ramping your spend up towards the new targets so that you can start hitting them. 

Sales and Marketing  

Your Marketing budget is always building towards the next revenue goal, even with factors such as sales cycles and the sales team’s performance impacting ROI it’s critical to work together and align ourselves around this key metric. Ultimately ROI is a company metric and is worth considering as a way to bring the two departments together.