When businesses invest in marketing, they expect that investment to pay off in sales growth. This is true whether they are investing in direct marketing such as Google Search Ads, or brand marketing like out of home ads or sponsored events. Ultimately, the goal is for the investment to turn into sales.
Measuring the amount of sales growth that marketing investment has driven is known as a business’s marketing return on investment (ROI). Understanding your business’s marketing ROI is key to sustained profit and revenue growth.
What is ROI in marketing?
Marketing ROI is the amount of sales your marketing efforts drive minus the associated costs. It is used as a key performance indicator (KPI), for marketing teams and represents a high-level view of marketing success.
Why measure marketing ROI?
By measuring your marketing ROI, you can understand how effective and profitable your campaigns are.
Measuring ROI in marketing helps you:
- Optimize your marketing budget allocation. You can compare the marketing ROI of different channels and campaigns, and you can decide which ones are worth investing more resources in. For example, if your search engine marketing (SEM) campaigns are more profitable than social media marketing, you can put more money into it to increase your revenue and profits.
- Justify your marketing spend. You can provide the performance data to stakeholders to show that marketing investments are generating a positive return. This makes it easier to get budget approval for future campaigns.
- Improve future ROI. You can refine your strategies based on your ROI data and improve returns of your future marketing campaigns.
How to calculate marketing ROI
A simple way to calculate marketing ROI is by measuring the percentage increase in sales relative to marketing expenditure. First, subtract the marketing costs from growth in sales and then divide it by marketing costs.
Here’s the formula for marketing ROI:
Marketing ROI = (Growth in Sales – Marketing Costs) / Marketing Costs × 100
Let’s say, you invested $10,000 in a marketing campaign and as a result, your sales increased by $50,000.
So, your ROI on marketing = (50,000 – 10,000) / 10,000 × 100 = 400%
An ROI of 400% means your campaign generated $4 for every $1 invested in marketing. This can also be expressed as a revenue to cost ratio of 4:1.
This simple formula can be helpful to get a quick high-level overview of marketing returns. However, if you want to identify specific marketing activities that drive more results, consider tracking ROI at campaign level.
In fact, Jay Soni, founder and marketing director at Yorkshire Fabric Shop (a Shopify store) believes, “At this very moment there is more emphasis on the ROI of individual campaigns and channels’ contributions.
“Now we can typically see what a particular email campaign has achieved in lead generation, sales conversion, and even customer re-engagement. It makes it a bit easier to see what works and what needs tweaking than thinking of marketing as a collective outcome.”
Here’s how to calculate ROI attributed to marketing campaigns:
Campaign ROI = (Revenue Attributed to Campaign − Campaign Costs) / Campaign Costs × 100
For example, let’s say you run two marketing campaigns:
- Social Media Campaign costing $10,000
- Email Campaign costing $5,000
The campaigns generate $50,000 in total revenue:
- 60% of revenue, i.e., $30,000 is attributed to the social media campaign
- 40% of revenue, i.e., $20,000 is attributed to the email campaign
So the attributable ROI of each campaign would be:
1. Social Media Campaign:
(30,000 − 10,000) / 8,000 × 100 = 250%
2. Email Campaign:
(20,000 − 5,000) / 5,000 × 100 = 300%
Why can marketing ROI be difficult to measure?
Measuring marketing ROI can be difficult because it’s a nuanced topic. While the above formulas look straightforward and easy to calculate, you need to consider the following factors:
Attribution challenges
A customer’s buying decision often involves multiple touchpoints, such as organic search, social media, ads, and email. Since all these channels contribute to conversion, it can be difficult to identify which one had the most significant impact.
For instance, a customer might see a social media ad, click on an email link, and finally convert through a Google search.
“Our biggest challenge in attribution is cross-device tracking,” says Jose Gallegos, growth marketer and founder of Jose Angelo Studios.
“We partially solved that by using user ID tracking, which has increased attributed conversions by 40%. We also use unique phone numbers and promo codes for offline conversions, enabling us to connect 85% of in-person sales to digital touchpoints.”
So it’s best to use the marketing attribution model that helps you accurately attribute revenue to customer touchpoints.
Jose continues: “The game of marketing ROI calculation has dramatically shifted toward multi-touch attribution. When I began 10 years ago, we mainly focused on last-click attribution. Now, my team tracks micro-conversions along the customer journey. For example, we recently mapped a customer’s 12 touchpoints across six months before their $50,000 software purchase, revealing that early stage content played a much bigger role than previously credited.”
Long-term results
Some marketing channels and strategies like search engine optimization (SEO), content marketing, or brand building may not translate to immediate or short-term revenue benefits. However, their results compound over time.
This delayed impact makes it difficult to attribute the eventual revenue or conversions to unique campaigns. So the early ROI calculations may appear low, and marketers may struggle to justify continued investment in such long-term strategies.
For instance, you invest $10,000 in an SEO campaign in January. But your website takes six to nine months to start ranking for your target keywords and driving website traffic and conversions. By December, the revenue generated from this campaign amounts to $50,000.
In such cases, the ROI of the first few months would be negligible or none. So you need to set clear expectations about the long-term returns, and initially track interim metrics like keyword rankings and organic traffic instead of ROI.
Qualitative factors
Not all marketing outcomes are directly measurable in monetary terms. For example, a content marketing campaign might improve brand perception. That campaign can eventually lead to purchases, but its direct impact on today’s conversions might not be clear.
According to Evaldas Mockus, VP of growth at Omnisend, “The most painful question is how to measure brand marketing efforts. For that we started to measure our brand searches changes via four different tools. We track our PR mentions. By gathering more data, we plan to build more advanced tracking for brand recognition.”
Marketing efforts like building brand awareness, customer loyalty, or reputation often contribute to long-term growth but don’t yield immediate, quantifiable returns.
“Brand awareness isn’t a metric, it’s a strategic asset,” says Arham Khan, founder and CEO of Pixated.
“We use sentiment analysis and engagement metrics to quantify these intangibles. We’ve also developed proprietary scoring models that translate brand metrics into potential revenue impact. It’s not perfect, but it’s far more sophisticated than traditional approaches.”
What is a good ROI for marketing?
A good marketing ROI can vary significantly from one business to another, as it depends on individual growth objectives and profit margins. However, as a general guideline, a marketing ROI of 2:1 is typically seen as acceptable, while a ROI exceeding 5:1 is often regarded as outstanding.
On the other hand, for some niches, an ROI of 10:1 is considered good.
For instance, Valentin Pechot, founder of Louce (a Shopify store), says, “In our industry (sport recovery ice bath equipment), a really good ROI is 10:1. We use TACoS (total advertising cost of sales). This metric is mainly used by Amazon advertisers. If you have a 10% TACoS, that means you spend €10 for marketing every €100 of revenue (organic plus paid).”
At the same time, some business owners, like Jay Soni of Yorkshire Fabric, don’t confine marketing ROI in absolute percentage.
“For me, I’m not concerned with ROI as an absolute percentage but more of a way to identify whether a campaign is actually achieving its specific objectives,” Jay says. “I’ve run campaigns where return initially seemed minimal, but over time, it paid off in terms of retention and referrals. I believe the real question isn’t, ‘What’s a good ROI?’ but, ‘Is this ROI driving meaningful growth for the business?’”
Common metrics for measuring marketing ROI
“Over the last few years, businesses have started emphasizing heavily on metrics like ROAS and CAC,” says Meghan Hardy, fractional CMO for ecommerce and D2C brands and founder of Happening Ideas. “The investors have prioritized efficiency over growth at all costs, and brands have been forced to do the same.”
Here’s a quick rundown of ROAS, CAC, and other important marketing KPIs that are used for measuring ROI.
| Example Output | Explanation | |
|---|---|---|
| CAC | $200/customer | The cost to acquire a customer |
| ROAS | 5:1 | $5 in revenue for every $1 in ad spend |
| LTV | $1,000 | Total revenue expected from one customer |
| Conversion rate | 5% | 5% of visitors completed the desired action |
| CPL | $20/lead | Cost to generate a single lead |
| CTR | 2% | 2% of viewers clicked on the ad |
Customer acquisition cost (CAC)
CAC is the cost of acquiring a new customer. To calculate your CAC, divide the total of your marketing and sales expenditure by the number of new customers acquired.
CAC formula: (Marketing Costs + Sales Costs) / Number of New Customers
Example:
You spent $10,000 on marketing and sales and acquired 50 new customers.
Your CAC is: 10,000 / 50 = 200.
This means acquiring each new customer costs you $200.
Return on ad spend (ROAS)
ROAS measures the revenue generated for every dollar spent on advertising.
ROAS formula: Revenue from Ad Campaigns / Ad Spend
Example:
You invested $5,000 in Google Ads and generated $25,000 in revenue from the campaign.
Your ROAS is: 25,000 / 5,000 = 5 (or 5:1).
The campaign generated $5 in revenue for every $1 spent on ads.
Lifetime value of a customer (LTV)
LTV is the estimated total revenue you can earn from an individual customer during their relationship with your business.
LTV formula: Average Purchase Value × Average Purchase Frequency × Customer Relationship Duration
Example:
On average a customer stayed with your business for five years and purchased $50 worth of products every three months.
- Average purchase value: $50
- Average purchase frequency: 4 times per year
- Customer lifespan: 5 years
Your LTV is: 50 × 4 × 5 = 1,000.
This customer’s lifetime value for your business is $1,000.
Conversion rate
Conversion rate is the percentage of visitors who complete a desired action (e.g., purchasing or signing up for a newsletter) on your website or app.
Conversion rate formula: Number of Conversions / Total Visitors × 100
Example:
10,000 people visited your website and 500 of them purchased a product.
Your conversion rate is: = 500 / 10,000 × 100 = 5%
Cost per lead (CPL)
CPL is the amount you spend on marketing to acquire one lead (potential customer).
CPL formula: Total Cost of Campaign / Number of Leads Generated
Example:
You spent $2,000 on a marketing campaign and acquired 100 leads.
Your CPL is: = 2,000 / 100 = 20
It cost you $20 to generate one lead through this campaign.
Click-through rate (CTR)
CTR is the percentage of users who clicked on your ad or link out of the total number of people who viewed it.
CTR formula: Number of Clicks / Number of Impressions × 100
Example:
50,000 people saw your ad in Google Search and 1,000 of them clicked on it.
Your CTR is: 1,000 / 50,000 × 100 = 2%
How to improve marketing ROI
Once you’ve measured your marketing ROI, there are three steps you can take to improve your returns over time:
- Scale winners
- Run tests
- Improve attribution
1. Scale winners
In any marketing strategy, some tactics or campaigns perform better than others. The first step is to identify what’s working best within existing campaigns and invest more in those areas.
For example, if your main marketing channel is social media advertising, you may find that a specific audience, such as a first-party/lookalike audience with similar shared characteristics as your current audience, performs best.
Jose suggests, “Look beyond campaign-level ROI to program-level impact. A seemingly low-ROI top-of-funnel campaign might be essential for feeding high-ROI bottom-funnel activities.”
2. Run tests
One of the best ways to unlock improved marketing ROI is to test new strategies and tactics. These tests won’t always pay off, but when they do, they can lead to improvements.
For example, if your main marketing channel is paid search, you may test expanding into organic SEO. If this new channel proves to have a high ROI, it will improve your overall ROI while improving sales.
“Marketing ROI isn’t a destination; it’s a journey of constant refinement,” Arham says. “So I’d say, Stay curious. Test relentlessly. Be willing to challenge yourself and remember that data can give you insights, but it’s your job to understand the narrative beneath the numbers.”
3. Improve attribution
If unsure whether you’re ready to scale your winners or run additional tests, you may have an attribution problem. This refers to your ability to understand the extent to which your marketing efforts drove sales.
When many marketers hear “attribution,” they think of web analytics and their cookie/pixel tracking. This is certainly part of it.
But understanding attribution is more than just a technical challenge. It’s strategic, too. Businesses can improve their attribution by gaining a deeper understanding of the customer lifetime value of each new customer their marketing acquires. It also helps to identify what percentage of new sales were due to organic word of mouth or factors unrelated to marketing.
Tools and software for tracking marketing ROI
Popular marketing analytics platforms
Marketing analytics platforms house all your data in one place. They’re crucial tools for giving you insight into your marketing funnels and campaign performance.
Popular marketing analytics platforms include:
- Shopify Analytics: An analytics tool tailored for Shopify store owners. It tracks key marketing metrics like sales, traffic, and conversion rates to help you understand how your campaigns impact your ecommerce performance. It can attribute revenue directly to marketing channels, such as email campaigns or social media ads to help you calculate and track your marketing ROI.
- Google Analytics (GA4): A comprehensive web analytics tool designed to track website and app user behavior. It helps you calculate marketing ROI by monitoring traffic sources, user engagement, and conversion paths and provide insights into which campaigns are driving revenue.
- Shopify Seller board: A profitability tracking tool for Shopify sellers. It provides real-time updates on profit margins, expenses, and ad spend to make it easier to calculate the profitability of marketing campaigns. It also features detailed expense tracking, which accounts for costs like shipping and transaction fees to provide accurate ROI calculations.
- Ruler Analytics: A marketing attribution platform that specializes in multi-touch attribution, tracking customer journeys across various channels, and linking them to revenue. Its standout feature is its granular attribution modeling, which integrates with tools like Google Ads and CRMs to provide detailed revenue insights.
- Sprout Social: A social media management tool that provides detailed insights into social campaign performance, including engagement, clicks, and conversions. It calculates ROI by attributing revenue to social media marketing efforts to help you understand the financial impact of your social media campaigns.
CRM systems and their role in ROI tracking
A CRM system helps track ROI by connecting customer data with money spent and earned. It does this by tracking where each customer comes from and monitoring what they buy and how much they spend.
Some top platforms include:
- HubSpot CRM: A customer relationship management (CRM) platform that centralizes data from marketing, sales, and customer service. It plays a pivotal role in ROI calculation by linking marketing campaigns to leads and closed deals, offering end-to-end visibility of customer journeys.
- Mailchimp: An email marketing platform that tracks engagement metrics like open rates, click-through rates, and conversions. It helps with marketing ROI measurements by linking your email campaigns to sales or other desired outcomes.
Marketing ROI FAQ
Does a higher ROI always mean a more successful marketing campaign?
Ideally, yes, a higher ROI would always mean a more successful marketing campaign. However, businesses have imperfect information, so marketing ROI should be considered alongside other marketing goals and assumptions about what is measurable. For example, a Google Search Ads campaign might report an ROI of 8 for a brand, whereas a sponsored event by the brand might lead to few new direct sales, reporting a negative ROI.
However, the sponsored event may have grown awareness, brand love, and brand interest in a way that the search ads couldn’t. In fact, some of the customers who purchased after clicking a search ad may have searched for the brand due to the brand-building effect of the sponsored event.
Can businesses calculate ROI for all of their marketing channels?
Yes, businesses can always calculate ROI for any marketing channel or campaign. This includes everything from radio ads to email marketing. However, some channels are easier to measure than others.
Digital advertising is the easiest to measure because you can track it via cookies and automated real-time marketing reporting. Businesses can still track traditional marketing techniques but in a different way; they typically rely on before/after tests or brand lift studies.
What is an example of ROI?
If a company spends $5,000 on a marketing campaign and generates $20,000 in revenue with $10,000 in associated costs, the ROI is calculated as (20,000 − 10,000 − 5,000) / 5,000 × 100 = 100%. This means the campaign doubled the investment.
Can marketing ROI be negative?
Yes, marketing ROI can be negative if the total costs of a campaign exceed the revenue it generates. For example, spending $10,000 on a campaign that results in only $7,000 in revenue would result in a negative ROI of (−3,000 / 10,000) × 100 = −30%.
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