Marketing and advertising strategies don't have a universal success rate. In fact, in the hands of new and inexperienced business owners, they're more likely to fail than they are to succeed. There are different definitions of what constitutes the "failure" of a marketing campaign, of course. Some people believe a strategy fails only when it's abandoned, or when it clearly results in a net loss of money. Others believe it fails whenever it doesn't hit the goal that was outlined.

The more reliable failure point, as far as we're concerned, is failing to generate an adequate return on your investment (ROI). But what exactly is marketing ROI, and how can you plan and execute a strategy that can guarantee it to you?

Why ROI Should Be Synonymous With Success

Your ROI represents the amount of money a strategy has returned to you, above and beyond your expenses. For example, let's say your strategy has resulted in 50 new leads, which you've calculated to be worth, on average, $1,000 each. That's a generation of a net revenue of $50,000--$50,000 that you wouldn't have if it weren't for the campaign. There are some complexities here, including whether brand awareness should be part of your calculations, and how to determine the true value of a new customer, but this is the high-level view.

Your costs, then, are the sum total of the material and placement costs (i.e., how much it cost to produce your products or place your advertisements) and labor costs (i.e., how much you paid the employees who orchestrated the campaign). If you're working with a marketing agency, you might have these costs rolled up into one convenient monthly value. Let's say you spent $25,000 on this campaign; subtract that from $50,000, and you have an ROI of $25,000, or a return of 2:1.

ROI is important because it blinds you to factors that might otherwise distort your perspectives. For example, you might be disappointed that your campaign only generated $5,000 of revenue for your business, but if you only spent $500 on it, that's an enormous return of 10:1. You could also be excited that your campaign generated $100,000 in new sales, but if you spent $110,000 to get it, you've actually lost money in the process. Simply understanding these principles can help you scale up the strategies that provide the highest return, while cutting the losers, ultimately optimizing your strategy for the long term.

Mastering Marketing ROI: Choosing the Right Campaigns

So what can you do to achieve a higher ROI for your company's marketing strategies?

You can start by choosing the right types of campaigns from the get-go. Low-cost marketing campaigns are often a good way to go (as long as you're not using cheap materials or inexperienced professionals as a way to artificially reduce costs). For example, printing postcards is less expensive than most people think, but a local business can use them to dramatically improve brand awareness (and advertise their latest offers).

One aspect to consider here is campaign duration. As a general rule, short-term, quick-fix strategies tend to be relatively more expensive than their long-term-focused counterparts. For example, take pay-per-click (PPC) advertising and content marketing. PPC ads will cost you more, but have the advantage of securing immediate leads. Content marketing, on the other hand, requires a massive time investment to scale properly; once it's at scale, it can start generating an equally massive return. Leaning toward long-term campaigns, and ones with low entry costs, can help you preserve a higher overall ROI for your company.

Mastering Marketing ROI: Measurement and Analysis

The next step to mastering your marketing ROI is learning how to measure and analyze it properly. There are always ways to optimize campaigns to make them more efficient, either to attract more new customers or to reduce your costs, but you'll never know if you take them at face value. Instead, you'll need to look carefully at all the variables that define the success of your campaign, scrutinize them, then experiment with them to see what effects your changes have. Only through this constant process of experimentation and evaluation will you be able to determine which tactics work best for your business--and monitor them to make sure they remain effective.

Marketing ROI is a deceptively simple principle that will dictate the success of every marketing and advertising campaign you launch. Fortunately, you can thin the herd early by realizing that some strategies have a naturally higher ROI than others, and spend time analyzing your results to polish your most effective tactics as you continue to execute them.

Don't let a low ROI stand in the way of your business achieving marketing success.

Published on: Mar 29, 2019
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.