One of the main goals for any marketer is to generate a positive return on investment (ROI) for their marketing efforts. While there are plenty of key performance indicators (KPI) to help determine the overall ROI, some are more important than others. You must figure out which KPIs are ideal to help calculate ROI, or you will waste time looking at vanity metrics that don't matter.

What Is a KPI?

A KPI is a way to measure the effectiveness of your marketing campaigns. Specifically, it's a type of quantifiable value you can use to calculate ROI along with other aspects of your strategies. Some KPIs can focus on the business's general performance. Others may help measure the effectiveness of specific departments including marketing, HR, sales, and customer support.

Which KPI Should You Track?

There are multiple KPIs worth tracking, and marketing ROI is just one of them. The following are some of the most important KPIs to look at if you want to gauge the profitability of your marketing efforts.

Marketing ROI

One of the most important KPIs to look at is marketing ROI. You can easily calculate marketing ROI using the following formula:

Sales growth - organic growth - marketing costs = marketing ROI

If you have the information to calculate ROI, you can more easily determine how profitable your business is. To determine how much your ROI has increased or decreased, you will need to use other KPIs to fill in the formula.

Marketing Costs

One KPI you'll need to measure ROI is marketing costs. There are several marketing costs that you will need to aggregate and track.

Some of the costs of marketing that you may need to look at could include:

• Cost of man-hours
• Overhead costs
• Digital marketing expenses
• Printing and direct mail costs
• Customer research and survey costs
• Branding development, e.g. logos and signage

All of these costs and others could factor in ROI calculations.

Gross Sales

Gross sales refers to the total value of all sale transactions without taking deductions or costs into account. In other words, it represents the gross revenue of your business.

You will need this KPI to determine the baseline organic growth of your marketing efforts. You can figure out how effective your marketing strategies are if you know your year-over-year or month-over-month growth before starting any marketing campaigns.

For instance, say your gross sales are up 2% year-over-year for the past few years. Nothing changes this year except for a marketing initiative. At the end of the year, you see gross sales are up 4%.

Without a baseline from gross sales, it would be tempting to say that the marketing initiative led to 4% growth. When subtracted from the baseline organic growth, the marketing initiative is revealed to have actually led to 2% growth.

Customer Lifetime Value

The ultimate goal for a business isn't to make one-time sales, but to attract repeat business from loyal customers. This is why it's not enough to know the average first purchase value of a customer. You should find out how much your customers are actually worth to you, by tracking how many times an average customer returns and how much they spend over time. The metric in this case would be the customer lifetime value (CLV).

If customers make repeat purchases, then your marketing ROI will be higher than if you rely on average purchase order or gross sales. Try to calculate CLV if you want to develop a full picture of your marketing ROI.

Brand Awareness

Brand awareness is another element that's important to measure if you want to calculate marketing ROI. Otherwise, you may lose sight of the importance of brand awareness. Instead, you will focus solely on revenue and tangible costs.

It can be a challenge to measure brand awareness, but it's certainly possible with the right method. For instance, you can use surveys to help measure long-term brand recall among your audience. Subsequently, you can determine how branding factors into your overall ROI based on how much it influences customers' purchases.

Combine These KPIs to Measure ROI

Tracking marketing ROI is necessary if you want to determine how profitable your marketing efforts really are. Neglecting to calculate ROI could leave you in the dark regarding your company's actual performance. You may be wasting money on resources that hold you back, or you might not be spending enough in other areas. With more insight into your ROI, you'll be able to allocate your budget more effectively.

Using marketing costs, brand awareness, gross sales, and customer lifetime value to calculate marketing ROI will help your business more accurately measure profitability. With a better understanding of your company's profitability, you can better determine where to cut costs or reallocate your marketing budget for optimal performance.