Even if your principal marketing strategy centers on inbound marketing, measuring the return on your marketing investment (ROMI) is still vitally important. That's because deciding which marketing activities, either alone or in combination with others, are objectively better is critical to the success of the typical agency.
Some marketing methods don't lend themselves to an ROI calculation. For example, if you send out 10,000 emails and get a 2 percent open rate, what is your ROI? Is that better than posting a white paper to your Web site that gets 50 hits? And is that better than connecting with 100 people on LinkedIn? And are any of these tactics better than cold calling?
While you might be able to calculate a cost-per-open, a cost-per-hit, a cost-per-connection or a cost-per-appointment, none of these can be directly compared to one another. That's because opened email is fundamentally different from a hit, which is different from a connection, which is different from an appointment. So comparing them is meaningless.
Making matters worse, you can't mathematically connect any of these so-called leads, with the exception of the telemarketing appointment, directly to revenue. Therefore, you can't decide how best to spend your marketing dollars because you don't know which promotional technique generated what revenue.
How to Calculate ROI
In order to calculate the ROI of your marketing programs, you need to know two things (other than your costs). First, you need to be able to identify the lead so you can track it through your sell cycle. You also need to include the cost of lead qualification and conversion, if any, in your analysis. Only then can you compare programs on an apples-to-apples basis and make sound decisions.
The examples above illustrate the challenges and solutions. For example, when you send out an email blast, you obviously know to whom you're sending it. If someone opens the email, clicks through to your landing page, and fills out a census, you know who it is, and you have the ability to trace the revenue back to your original email.
But, if you post a white paper on your Web site as part of a social media marketing (SMM) campaign, and you can't get readers to give you their email address as a condition for downloading it (which is often the case), you don't know whether the paper influenced the buyer. And you can't gauge whether there was any benefit to posting it.
With a telemarketing campaign, it's easy. You know who you called, and you know who responded, qualified and closed. So you can easily determine whether a given call generated revenue and (usually) how much.
In our experience, the best solution for the insurance agency is to differentiate between those marketing activities where you can identify the prospect (and therefore directly calculate an ROMI) from those where you can't. For convenience, we'll call the first group of activities "lead generation," and the second group "advertising."
For those leads where you can identify the prospect, you can easily calculate the costs of qualification and closing. For example, if you have an email address, you need to include the costs of researching the company, making contact, setting the appointment, qualifying them, and taking the prospect through the sell cycle. If you ran a direct mail program that returned business reply cards (BRCs), you would include the cost of telephone follow-up and, again, researching, qualifying and closing them. Telemarketing leads would include the cost of taking them through the sell-cycle, and closing.
If all you have is an IP address, you have more research to do, and (no doubt) considerably more fall-off. But if you can't track the visitor down, then you have to put the "lead" back in with the advertising outcomes, along with the other indeterminate clicks, impressions, eyeballs and downloads.
Once you've identified all your lead generation costs by lead type, and all your attributable revenue from each program, subtract the costs from the revenue to get net revenue. Then divide the net revenue number by the cost of the program to arrive at your ROMI, as shown below.
