Measuring the ROI of a marketing agency is important because it helps us evaluate how your marketing campaigns are helping your business grow. It’s a prerequisite for judging whether you’re getting a good deal from your marketing agency, and it helps you decide how to allocate your marketing budget. The purpose of this guide is to give you a framework for measuring the ROI of a marketing agency because if you’re not doing it, you’re not running your business as smartly as you could be.
Understanding ROI in Marketing
Definition of ROI (Return on Investment)
ROI, which stands for return on investment, is a performance metric that measures the efficiency of an investment. It is often used in marketing to assess whether your marketing spend was profitable. By taking the net profit you earned from a marketing campaign and dividing it by the total cost of your marketing investment, you calculate a percentage that represents the return from your investment. The formula looks like this:
ROI = [(Net Profit / Cost of Investment)] × 100
Importance of Measuring ROI of a Marketing Agency
The ROI of your marketing efforts is valuable to measure because it tells you what’s truly working and what’s not, allowing you to make the right decisions on where to allocate your resources. In other words, knowing the ROI of your marketing campaigns gives you the ability to make data-driven decisions about the direction of your business and, ultimately, its bottom line.
Common Challenges in Measuring ROI in Marketing
While this seems so important, ROI of a marketing agency can be difficult. The problem of attribution, in that it’s difficult to discern what marketing activities drove a sale or a lead, is a major obstacle. Customers are touched across multiple touchpoints, often across multiple channels. It’s difficult to assign revenue to specific campaigns. There’s also the problem of time. Many marketing efforts have immediate and long-term impacts. It’s nearly impossible to calculate ROI of a marketing agency in a short timeframe. Finally, there’s the issue of data quality. Inaccurate or incomplete data makes it difficult to make the right calculations.
Setting Clear Objectives and KPIs
Defining Your Marketing Goals
ROI of a marketing agency can’t be measured until you decide what your marketing goals are. What are you trying to do with your marketing efforts—build brand awareness, drive website traffic, generate leads, or make sales? Clear goals provide a framework for your marketing and serve as the foundation for measuring success.
Identifying Key Performance Indicators (KPIs)
KPIs are metrics that help you evaluate how well your marketing campaigns are meeting your goals. Here are some critical KPIs:
Conversion Rates
Conversion rates reflect the number of visitors to your site or page who take action, such as buying something or filling out a form. The higher the conversion rate, the better your marketing strategy and the higher your return on investment.
Lead Generation
It’s often important to track how many leads you generate as a measure of the success of your marketing efforts to attract customers. This KPI can be especially helpful for B2B businesses.
Customer Acquisition Cost (CAC)
CAC calculates how much it costs you to convert a lead into a customer. If you divide CAC by the number of new customers, say over 30 days, by the revenue generated from them, you can see how much money you’re making per new customer.
Lifetime Value (LTV) of a Customer
This LTV calculates the total revenue that a customer is expected to generate for your company throughout your relationship. Knowing LTV helps you gauge the long-term ROI of your marketing efforts.
Website Traffic and Engagement Metrics
Page views, time on site, bounce rate, social media engagement, and other metrics can show you how well your marketing campaigns are driving traffic and engaging users.
Tracking Marketing Activities
Overview of Marketing Activities to Track
To accurately measure ROI of a marketing agency, you will have to track marketing activities across all these areas: 1. Investment in your website; 2. Investment in advertising; 3. Investment in social media 4. Investment in other marketing activities
Digital Marketing Campaigns
Tracking click-through rates, return on ad spend, conversion rates, and cost per click can help measure the success of online advertising campaigns, such as Google Ads, banner ads, and social ads.
Content Marketing Efforts
Measure what blog posts, videos, infographics, and other content types drive traffic and leads. Engagement metrics such as shares, comments, and time on content are important.
Social Media Engagement
They include the number of likes and shares you receive on Facebook, Instagram, and Pinterest, the number of comments on your YouTube videos, the number of followers you earn on Snapchat and other social platforms, and how much your follower counts go up or down. These are all useful for tracking how your social media efforts are contributing to brand awareness and customer engagement.
Email Marketing Campaigns
Review open rates, click-through rates, and conversion rates from your email campaigns to identify what’s working to drive traffic and leads or sales.
Paid Advertising (PPC, Display Ads)
Track the effectiveness of pay-per-click (PPC) campaigns and display ads (impressions, clicks, conversion rates, return on ad spend [ROAS]).
Tools for Tracking Marketing Activities
In order to track them effectively, you need to use the right tools. These include:
Google Analytics
Google Analytics provides detailed information about website traffic, visitor behaviour, and conversion tracking. It is essential for measuring the effectiveness of digital marketing.
Marketing Automation Platforms (e.g., HubSpot, Marketo)
These platforms provide features for tracking, analysing, and optimising marketing campaigns and integrate various marketing activities so that performance metrics are shown in one place.
Social Media Analytics Tools
We can plan our social media activities at a time that’s convenient for us, but we can also track engagement and performance via tools such as Hootsuite, Buffer, or Sprout Social, which provide valuable insights into the efficacy of our social media strategies.
CRM Systems
Integrated Customer Relationship Management (CRM) systems such as Salesforce and Zoho CRM can track all interactions with leads and customers, allowing you to see if your marketing is generating the leads and whether your lead management is turning those leads into customers.
Calculating Marketing Costs
It is important to consider all costs in order to calculate the true ROI of a marketing agency. There are direct costs and indirect costs.
Identifying Direct Costs
Agency Fees: The fees your marketing agency charges you for their services make up a large portion of your direct costs. This is for any retainers or project-based fees paid, as well as any performance-based compensation stipulated in your contract.
Advertising Spend: Any money spent on paid media, such as Google Ads, Facebook Ads, or any other placement, should be included in the spending tally, including the cost of the placements and any additional fees for management.
Content Creation Costs: Consider any costs you incur to create content, such as blog posts, videos, infographics, social media posts, and so on. This could include fees for freelance writers, videographers, graphic designers, and others.
Software and Tools: Any software and tools that you need to use for your marketing—marketing automation platforms, analytics tools, CRM systems—are expenses that must be included in your budget. These tools are necessary to track your campaign effectively.
Identifying Indirect Costs
Internal Resources and Time: The amount of time and resources your internal team spends supporting marketing efforts is also an important factor. That’s the number of hours your employees spend on things they do to help bring marketing efforts to life, whether that’s planning, coordinating, or executing.
Training and Onboarding Costs: This would include the cost of training and onboarding your internal team members and external agency staff so that everyone is up to speed with the right information and skills to support your marketing needs efficiently.
Measuring the Impact of Marketing Activities
When your marketing costs are realistic, measured, and understood, the next step is to quantify the results of your marketing—in other words, how many customers you are acquiring from your marketing activities and how much it costs to acquire them. This might mean looking at a range of data and metrics.
Analysing Data and Metrics
Conversion Tracking: Track conversions to see how many visitors are converting on certain actions, such as filling out a form or making a purchase. This helps you understand which campaigns are driving the most valuable actions.
Sales Data: Measure revenue from your marketing spend. Use the data to identify exactly what your marketing efforts are really doing for revenue, such as driving how many sales, to what value/average order value, and to what overall revenue from marketing.
Surveys and Feedback: Customer feedback from direct surveys can be a great way of determining if your marketing efforts are effective. You can ask for feedback on the quality of your products and customer satisfaction and determine from feedback if your message is hitting home.
Attribution Models
Distribution gives all the credit for a conversion to the first thing a customer did related to your brand. This method helps you identify your most successful first touchpoints.
Last-Touch Attribution: Last-touch attribution credits the last interaction before the conversion. This model works best for identifying which touchpoints in the funnel are most effective at closing sales or driving final actions.
Multi-Touch Attribution: The model takes into account every single interaction the customer had with your brand before converting. This gives you a more accurate picture of how much each touchpoint contributed to the customer journey and conversion.
Calculating ROI
Now that you know the cost and impact of your marketing activities, you can measure the ROI of a marketing agency and determine if your marketing is profitable.
The Formula for Calculating ROI
The basic formula for calculating ROI of a marketing agency is:
ROI=Net ProfitCost of Investment×100 ROI=\left(\frac{\text{Net Profit}}{\text{Cost of Investment}}\right)×100 ROI=Cost of InvestmentNet Profit×100
Net profit is given by the revenue generated by your marketing minus total marketing costs.
Examples of ROI Calculations
A simple ROI calculation marketing campaign generated $50,000 in revenue. The total cost of the campaign is $10,000. Net profit is $40,000.
ROI=(40,00010,000)×100=400%\text{ROI} = \left( \frac{40,000}{10,000} \right) \times 100 = 400\%ROI=(10,00040,000​)×100=400%
This means that for every dollar spent, you earned four dollars back.
How to calculate ROI of a marketing agency when you’ve used multiple marketing channels if you used multiple channels and want to have a breakdown of ROI by channel, you can use the above figures to do that:
Google Ads: $20,000 revenue, $5,000 cost
Facebook Ads: $15,000 revenue, $3,000 cost
Content Marketing: $10,000 revenue, $2,000 cost
For Google Ads:
ROI=(15,0005,000)×100=300%\text{ROI} = \left( \frac{15,000}{5,000} \right) \times 100 = 300\%ROI=(5,00015,000​)×100=300%
For Facebook Ads:
ROI=(12,0003,000)×100=400%\text{ROI} = \left( \frac{12,000}{3,000} \right) \times 100 = 400\%ROI=(3,00012,000​)×100=400%
For Content Marketing:
ROI=(8,0002,000)×100=400%\text{ROI} = \left( \frac{8,000}{2,000} \right) \times 100 = 400\%ROI=(2,0008,000​)×100=400%
You can calculate ROI of a marketing agency for each channel and allocate your budget based on what’s working best.
Analysing and Interpreting Results
Once you have calculated the ROI of a marketing agency, you must analyse and interpret the figures to figure out what they mean and how they can guide your future marketing strategy.
Understanding the Significance of ROI Results
Nothing is more telling than your ROI numbers when it comes to the financial viability of your marketing mix. Positive ROI numbers indicate that you are making more money than what you are spending on campaigns. In contrast, negative ROI numbers signify that you are spending more than you are earning. However, as the saying goes, numbers don’t lie, but liars lie with numbers. Context and nuance play a crucial role. For example, a stellar ROI might indicate an exceedingly successful campaign. Still, it also begs the question of the absolute scale and sustainability of such results.
Comparing ROI Across Different Marketing Channels
Comparing ROI across these channels helps you determine where to allocate resources and which need to be adjusted. By looking at the results across your marketing channels, including Google Ads, Facebook Ads, content marketing, and email campaigns, you can see where to invest more resources and which channels require optimization or need to be abandoned completely.
For example, if your Facebook ads have a higher ROI than your Google ads, you might want to increase your Facebook budget and rethink your Google ads approach. You can do this because you have data to compare with, allowing you to make decisions that improve your marketing strategy as a whole.
Identifying Areas for Improvement
ROI analysis can identify areas where your marketing can be improved. If certain campaigns or channels have low ROI, start digging deeper into your metrics to find out why. Check your conversion rates and engagement metrics, and read what your customers are telling you.
Another example: If your content marketing has a low ROI, you could have a problem with engagement or a lack of a match between the content and your prospective buyers’ interests. When you recognise what’s wrong, you can shape your fixes accordingly. You might refine your content strategy, test different calls-to-action (CTAs), or improve the user experience.
Reporting ROI to stakeholders
After all, reporting ROI meaningfully to stakeholders is the key to validating your marketing and securing ongoing support and investment.
Creating clear and concise ROI reports
In your ROI reports, be clear and brief. Focus on the most important metrics and results that give a complete picture of your marketing performance. Don’t drown stakeholders in too many numbers; highlight the most important insights for them.
Key Metrics and Results
Include the most relevant metrics in your reports, such as conversion rates, customer acquisition cost (CAC), lifetime value (LTV) of a customer, and overall ROI. This will show how marketing is driving the business.
Visual Representations (Charts, Graphs)
Firstly, visualising your data, such as through charts and graphs, will make your information more accessible and easier to understand. Visual aids will help to emphasise trends, comparisons, and key points much more effectively than bar charts. Bar charts will help you compare ROI across different channels, and line graphs will help you see the trend over time.
Actionable Insights
With the metrics, channels to invest more in, which strategies to refine, and where to improve. Actionable insights help stakeholders understand the practical implications of the data and what it means for them to take action.
Presenting to Executives and Decision-Makers
When presenting ROI findings to your executives or other decision-makers, lead with the strategic implications and business impact in clear, simple terms—for example, ‘Our marketing efforts are driving growth, improving efficiency, and contributing to our business goals.’ If asked, be prepared to contextualise the numbers, provide a rationale, and answer questions.
Sharing with the Marketing Team
Finally, sharing the ROI results with the marketing team promotes a culture of data and continuous improvement. Leverage your ROI learnings to help guide team discussions, establish performance benchmarks, and identify areas for collective improvement. Invite team members to weigh in with their ideas and feedback from the results to evolve strategies and improve performance.
Conclusion
Measuring marketing ROI is another important task for marketers because it helps them evaluate their performance and make smart decisions regarding marketing objectives. A structured approach for tracking, analysing, and reporting ROI ensures smart marketing strategies for the future, optimising resources, and driving sustainable business growth.