When it comes to a company’s advertising budget, many people zero in on the percentage of revenue they’re spending. And while that’s important, it’s not the whole story. I believe it’s just as critical—if not more so—to keep a close eye on the Return on Investment (ROI) month over month. Why? Because ROI gives you a direct line of sight into how effective your marketing is and whether you’re on the right track, or if it’s time to adjust course.
Why Monthly ROI Is More Important Than % of Revenue Spent
Your ROI is more than just a number. It’s an indicator of your marketing strategy’s health. Rather than sticking to a fixed percentage, look at the returns your marketing dollars are generating each month. If your ROI consistently lands above a 5:1 ratio, you’re likely in a solid place. And if you’re hitting that 10:1 mark, that’s exceptional—a sign that you’re squeezing every bit of value from your ad spend.
Let’s Break Down the ROI Formula
We like to keep things simple and practical.
ROI = (Sales – Marketing / Marketing) x 100
In other words, you’re measuring how much revenue your marketing is driving compared to what you’re spending. Let’s run through some examples to see what this looks like in the real world.
Example 1
Room for Increasing Spend (and Returns) with a Strong ROI
Room for Increasing Spend (and Returns) with a Strong ROI
Scenario: Imagine a company pulling in $1,000,000 in sales revenue each month, with a marketing budget of $70,000 (7%)
Step-by-Step Calculation:
- Sales growth: $1,000,000.
- Marketing spend: $70,000.
- Apply the formula for ROI: (1,000,000−70,000 / 70,000) x 100 = 1,329%
What It Means: This company has a 13:1 ROI, meaning they make $13.29 for every dollar they put into marketing. When I see this, I recommend bumping up their ad spend—this is a clear sign that the marketing efforts are working, and there’s room to push further if the demand is there and their Team can handle it.
Example 2
When It’s Time to Reassess Marketing Efficency/Strategy
Scenario: Now let’s look at a company bringing in the same $1,000,000 in monthly revenue but spending $110,000 (11%) on marketing.
Step-by-Step Calculation:
- Sales growth: $1,000,000.
- Marketing spend: $110,000.
- Apply the formula for ROI: (1,000,000−110,000 / 110,000) x 100 = 809%
What It Means: This company has an 8:1 ROI—they’re making $8.09 for every dollar spent. While this is still good, it’s below that 10:1 sweet spot that signals top-tier performance. Here, I’d suggest focusing on making their marketing more efficient and potentially finding areas that can be trimmed. It’s all about refining the approach until we’re seeing a stronger return.
Why ROI Can Fluctuate..
Now, we all know that ROI can be a moving target. Things like weather, political changes, and the natural ebb and flow of your industry can play a big role. For example, seasonal changes might mean higher demand in spring for home improvement services, but a slower pace in winter. These factors can swing your results, making it critical to adapt your marketing to the conditions at hand.
Why Good Marketing Can Still Show a Poor ROI
It’s important to understand that even if your marketing efforts are hitting the mark and generating leads, a strong ROI isn’t always guaranteed. Sometimes, a less-than-stellar ROI has more to do with what happens after a lead comes in. Here are a few factors that can skew your ROI despite a healthy lead flow:
Finding the Right Balance Between Growth and Efficiency
The goal isn’t just to spend more money on marketing—it’s about spending smarter. By keeping a close eye on your ROI, you can fine-tune your marketing budget to match what’s happening in your industry and with your business. It’s a balance: keeping things efficient while still seizing opportunities for growth when they come up.
Final Thoughts
In the world of business, being flexible and strategic with your marketing budget is key. If you want to grow, you have to be willing to adjust your approach based on the data. A well-calculated ROI helps you see where you’re winning, where you need to improve, and where the next big opportunity might be. Because at the end of the day, “You can’t manage what you don’t measure,” and that couldn’t be more true when it comes to marketing.
Ready to see what a tailored marketing strategy can do for your business? Let’s chat. At Greenbaum Stiers, we believe that every dollar you spend on marketing should drive real growth. Whether you’re looking to fine-tune your current efforts or scale up, we’re here to help. Reach out for a free marketing audit, and let’s see how we can boost your ROI and generate more leads within your specific industry!