Calculating marketing ROI is not a complex procedure. If you have the numbers in front of you, it’s a simple matter of subtraction and division. The trick to an easy, quick calculation is having the right information at your fingertips.
What Information You’ll Need
To calculate how well your marketing dollars are performing for your practice, you will need two numbers:
First, you need to know what your sales growth (in dollars) is for a particular time period. Calculate sales growth by finding the difference between the total sales for the period you wish to measure and the prior period. If you’re interested in the marketing ROI for the second quarter, for example, then find the difference in totals between the first and second quarters.
Secondly, you’ll need to know the total number of dollars spent on marketing during the same time period.
The Simple Calculation
With those two numbers in hand representing the same time period, you’re now ready to calculate your marketing ROI.
Step 1
Take the sales growth number and subtract the marketing costs, which produces a net gain or loss.
Step 2
Take the net gain (or loss) and divide by the marketing costs. The resulting number, when multiplied by 100, is your marketing ROI expressed as a percentage.
The formula looks like this:
(Sales Growth – Marketing Costs) / Marketing Costs = ROI
Let’s look at an example: You wish to calculate your marketing ROI for the second quarter. Total revenue for the first quarter was $354, 603. Total revenue for the second quarter was $365,980. The difference between the two numbers is $11,377.
Next, subtract your marketing costs for the second quarter from total sales growth for the same quarter. If your second quarter marketing costs were $6,391, the difference is $4,986. Divide that number by total marketing costs (and multiply by 100 to display a percentage). In this case, the marketing ROI is 78%.
Is 78% a good number? Ask yourself this question: Would you invest in a stock with a 78% return? Absolutely! For every dollar you spend on marketing you get $1.78 back in new revenues.
Why You Should Measure Marketing ROI
A one-time measurement of marketing ROI tells you if your current spend is generating a return. Just by looking at the total amount spent and the total increase in sales, you probably can judge whether your marketing is working for you.
But measuring marketing effectiveness is not about a one-time measurement.
When you calculate marketing ROI on a regular basis, you can begin to track increases or decreases in marketing effectiveness. A flat or decreasing trend lets you know it’s time to make a change to your marketing. Of course, an increasing trend indicates your marketing is spot on, perhaps justifying an increase in marketing spend.
Tracking ROI provides another data set you should use when evaluating your practice’s overall financial health. Patient communication preferences will also impact costs and revenues.
Advanced Measurements: What You Really Want to Know
What you really want to know is what aspect of your marketing is performing and what is not performing. For example, your marketing mix may include Google Adwords, Facebook advertising, direct mail, and sponsorship of a local college athletic team. Which of these vehicles is really driving revenues?
What you really want is to be able to calculate an ROI for each of those vehicles using the formula above. As a result, you may discover that your FaceBook advertising has a positive ROI, but your direct mail has a negative ROI. With that knowledge, it may make sense to discontinue your direct mail marketing and put more of your marketing dollars to work with FaceBook.
Gaining that knowledge becomes tremendously difficult if you’re not able to track the source for every dollar of revenue you receive. A medical marketing solution, like RelevantMD, is able to track the source of nearly every dollar in revenue by knowing the value of an appointment and the catalyst for that appointment. Further, solutions like RelevantMD, do all the ROI calculations for you. At any time, a real-time dashboard displays the ROI for every marketing campaign your practice is running now and historically.
Don’t get hung up on advanced numbers to begin with. Start with tracking overall marketing ROI on a regular basis, then move to the heavy stuff. Or speak with a medical marketing solutions company, like RelevantMD, and leave the heavy lifting to someone else.
