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In: Economics

How do marketers measure return on marketing investment? Why is this figure difficult to assess?

  1. How do marketers measure return on marketing investment? Why is this figure difficult to assess?

Solutions

Expert Solution

To measure return on marketing investment marketers uses the basic formula which is

ROI= (Revenue from marketing campaign -cost of marketing campaign)/ (Cost of marketing campaign)

However, some companies deduct other expenses and use a formula like this:

ROI= (Profit – Marketing Investment – Overhead Allocation – Incremental Expenses)

There are some important factors which plays important roles in calculating ROI is

1. Total revenue: generated for a campaign (or gross receipts or turnover, depending on your organization type and location, which is simply the top line sales generated from the campaign)

2.Gross profit, or a gross profit estimate: which is revenue minus the cost of goods to produce/deliver a product or service. Many marketers simply use the company’s COG percentage (say 30%) and deduct it from the total revenue

3.Net profit: which is gross profit minus expenses

It is sometimes difficult to assess, because of the following reason :

because marketing efforts usually result to intangible benefits for employees and customers. Intangible benefits are those improvements that aren’t easily translated to monetary value such as:

1. Increased commitment and employee engagement

2. Reduced stress levels

3. Increased job satisfaction

4. Improved customer service


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