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Tom Duma

Follow This Formula to Calculate Return on Investment (ROI) in Marketing

This will give you a more accurate view of how successful given campaigns are.

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THESE DAYS, IT can be a challenge to decide how to spend those precious marketing dollars. You want to get the best return on investment (ROI) that you can. But what is a good ROI?

Here is a simple formula that you can use on all your ad spends. Determine your gross sales and estimate how much of those gross sales can be attributed to your ad campaign cost. Calculate your ROI by subtracting the cost of the campaign from total sales during the campaign, then divide that net sales figure by the cost of the campaign.

Here’s the formula:

(Total sales from event or during campaign) – (Cost of campaign) = (Net sales)

(Net sales) / (Cost of campaign) = ROI

Example: You spent $8,000 on your spring diamond bridal campaign and gross sales for your event were $35,000. $35,000 – $8,000 = $27,000 / $8,000 = 3.375 to one.

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Everyone has a different breakeven in their store. Once you know that number, you will know what ROI you need in order to call that marketing campaign a success.

What is a good marketing ROI? According to most pundits, 5:1 is a good return on investment. At its most basic level, “good ROI” means that for every dollar put toward marketing, the business gets more than a dollar back.

ROI can be difficult to measure when it comes to social media marketing. You must place an ROI value in your formula that measures the value of brand awareness and brand identity. While perhaps those two may or may not convert at your POS, they are nevertheless what your ROI is when you do free social media posts. When you start spending marketing dollars on paid campaigns, paid search, paid display ads with a CTA (call to action) and retargeting, those will produce ROI in terms of conversion to sales that can be measured.

Every campaign will have different ROI definitions or benchmarks. For example, if your ad spend is on Google AdWords, then your ROI should measure website sales conversion and/or web traffic.

It’s important to note, however, that this formula makes the assumption that all sales growth is tied to marketing efforts. In order to generate a more realistic view of marketing impact and ROI, marketers should account for organic sales.

Start today to measure the precious dollars that you are spending on marketing. Create a spreadsheet and start tracking the ROI!

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Tom Duma is president of Thom Duma Fine Jewelers in Warren, OH. After retiring from professional motorcycle racing in 1982, Tom entered the family business, channeling his competitive energy into selling jewelry. A local landmark for over 100 years, the store saw moderate success until Tom chose a different path forward. He purchased the store from his father and went on to reinvent the retail experience. Bringing in designers and international architects, he transformed the family business into a luxury destination, even qualifying as one of INSTORE's "America's Coolest Stores" in 2007. Today, Tom continues to redefine what it means to be successful, watching his business grow year over year with new avenues of outreach, marketing and brand development. Reach him at [email protected]

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