Companies with higher gross margins (their COGS are LESS than 50% of sales price) do not need to achieve as many sales from their marketing before they are profitable. Therefore, their ratio is lower.
Meanwhile, companies with lower margins (their COGS are MORE than 50% of the sales price) need to stretch their marketing dollars even further before it becomes worthwhile to do so. Their ratio should be higher.
– Online cross-selling can help increase customer lifetime value, which lowers your cost per acquisition target.
Why lifetime value is critical when calculating ROI
Lifetime value refers to the value a customer brings to a business over their entire lifetime as a customer, NOT just through their first transaction with you. Many businesses only think in terms of the value of the first transaction and call it a day. But a customer’s lifetime can be much more fruitful than that, so to accurately calculate ROI, we need to understand total return.
For example, we worked with a client to set up a reporting tracking system for their paid search (PPC) campaign. Previously, we would only attribute the first sale generated by a PPC click to the campaign. In reality, these customers would return multiple times, usually from other channels, to make additional purchases. Since that customer came from the PPC campaign, PPC should continue to get credit for the incremental sales made.
Remember that chart at the beginning of this post showing €500k in revenue for €112k invested? This client had achieved the 5:1 revenue to investment ratio, but that’s not the whole story. Before adding repeat sales to this chart, PPC performance was very different.
When you only quantify revenue from the first PPC sale and not lifetime value, we weren’t even hitting a 2:1 ratio.
And this is what the cumulative difference between bahamas telemarketing first sale value and lifetime value looks like over time.
The investment has never changed, but our perception of the campaign’s impact on revenue (and ultimately ROI) has changed dramatically.
How do I calculate my Target Marketing ROI ratio?
A CMO, CFO or CEO will be able to calculate their target ratio. They will need to take into account the company’s gross margin goals, overhead costs and what it takes to get money to the bottom line.
Keep in mind that achieving a 10:1 ratio is not realistic new products that hubspot introduced in 2021 and should not be the expectation for your marketing campaigns. For most businesses, the goal will be a 5:1 ratio, and anything beyond that is good.
It’s not easy to calculate the revenue generated by all marketing activity. Certain tactics such as social media, content marketing, video and display ads for a targeted audience begin long before a sale is made.
Marketing software platforms like Hubspot , Marketo, and Pardot belize lists do a good job of connecting early engagement to a final sale, but they’re not perfect.
Just because a marketing activity cannot be perfectly measured doesn’t mean it shouldn’t be considered.
That said, marketers should always be working to connect the dots between activity and revenue. Advances in web analytics software and methodology provide better insight into measuring activity over time and across different devices.