Get Smarter About Investing Your Marketing Dollars: How to Measure and Improve Your Marketing ROI
If you want to make your marketing dollars work harder for you, there’s only one way to start: document and measure what’s happening in your business right now. By understanding where your money is going and what results it’s driving, you can make informed decisions that will improve your marketing ROI and help your business grow.
Step 1: Aggregating Your Marketing Spend
The first step in this process is to aggregate all of your marketing-related costs. This might seem straightforward, but marketing expenses are often spread across various accounts and categories. To get a clear picture, you’ll need to gather all relevant expenses, which may include:
- Advertising: Costs related to online or print ads, trade shows, sponsorships, and other promotional activities.
- Dues and Subscriptions: Membership fees for networking groups, professional associations, and industry-related publications.
- Education: Expenses for marketing training, courses, or workshops for your team.
- Marketing: Direct costs tied to specific marketing campaigns or strategies.
- Office Supplies: Costs for graphic design subscriptions, stock images, and other creative resources.
- Payroll, Salaries, and Wages: Allocation of employee time spent on marketing projects or initiatives.
- Printing and Postage: Costs for physical marketing materials, such as flyers, brochures, and direct mail campaigns.
- Professional Fees: Payments to marketing consultants, coaches, graphic designers, copywriters, and other professionals.
- Software/Technology: Subscriptions for marketing software, analytics tools, and apps.
- Travel: Expenses for attending trade shows, conferences, and other events that support your marketing efforts.
Once you’ve compiled these expenses, you’ll have a comprehensive view of what you’re spending on marketing. This allows you to calculate the first key metric: marketing spend.
Step 2: Calculating Your Marketing Spend
To calculate your marketing spend as a percentage of revenue, use the following formula:
Total marketing costs / Total gross revenue = Marketing Spend
This will give you a percentage that reflects how much of your revenue is being invested back into marketing.
- For higher growth companies, this percentage is typically closer to 10%.
- Stable or slower growth companies might spend around 5%.
- Large companies often allocate between 9% and 12% of their gross revenues to marketing efforts.
Understanding your marketing spend helps you determine if you’re investing enough—or perhaps too much—in marketing, based on your business’s growth stage and goals.
Step 3: Measuring CAC (Cost to Acquire Customer)
One of the most critical metrics for evaluating the effectiveness of your marketing is the Cost to Acquire a Customer (CAC). This tells you how much it costs, on average, to bring a new customer into your business.
To calculate CAC, you’ll need to determine the number of new customers acquired during a specific period and apply the following formula:
Total marketing costs / Number of new customers = CAC
Knowing your CAC is crucial because it helps you assess whether your marketing efforts are cost-effective. A high CAC could indicate inefficiencies or overspending in certain areas, while a low CAC suggests that your marketing strategy is working well.
You can also calculate CPA (Cost Per Acquisition), which breaks down the CAC by individual campaigns or marketing channels, such as email marketing, social media, or paid ads. This granular approach allows you to see which channels are delivering the best return on investment.
Step 4: Analyzing Revenue Per Customer
Another valuable metric is Revenue Per Customer, which measures the average amount a customer spends at your business over a specific period. Here’s the formula:
Total revenue for a period / Total number of customers for the same period = Revenue Per Customer
This metric gives you insight into customer behavior and can help you identify trends or opportunities to increase customer spending.
In addition, calculating Customer Lifetime Value (CLV) is essential for understanding the long-term value of a customer. CLV measures how much revenue a customer will generate over their entire relationship with your business. Use the same formula as above, but extend the timeframe to cover the longest period for which you have data.
Comparing CLV with CAC provides a powerful perspective on how much you can afford to spend to acquire new customers. If your CAC is lower than your CLV, your marketing efforts are likely profitable. If not, it may be time to adjust your strategies.
Step 5: Making Smarter Marketing Investments
With these metrics in hand, you can make informed decisions about where to allocate your marketing budget. You’ll know which channels are most effective, how much you can afford to spend to acquire new customers, and where there may be opportunities to optimize your efforts for better returns.
Ready to Get Smarter About Your Marketing Spend?
If you’re ready to take control of your marketing budget and make data-driven decisions that boost your ROI, it’s time to get serious about measuring and improving your marketing performance. Our team can help you calculate these essential metrics and guide you on how to invest your marketing dollars more wisely.
Book a complimentary 30-minute consultation call with us today. During this call, we’ll dive into your current marketing spend, help you understand your key metrics, and discuss strategies to optimize your marketing investments for 2025.
Click here to book your call now and start the journey toward smarter, more effective marketing.
Don’t let another year go by without knowing exactly where your marketing dollars are going and how they’re working for you. Let’s work together to build a more profitable, data-driven marketing strategy for your business.