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Small Business Marketing: How do you measure return on investment?

by Shareef Ayyad. Average Reading Time: about 3 minutes.

At some point, every small business owner asks themselves whether their marketing activities are making a difference, and they wonder if the time and money they are allocating to a marketing channel is yielding any kind of return on investment (ROI).

The most effective way to measure return on investment is to build a system of metrics that gauge the customers’ engagement levels at every stage of the sales funnel. This will help you identify any weak links in your marketing activities – points where your customers stop engaging.

It’s not just about conversion

Small business owners shouldn’t just produce marketing activity/materials that cater only for the end of their sales funnel i.e. the conversion. Instead, you should create content that caters to every stage of the buying continuum, with the aim of gradually guiding your customer towards purchase within a certain time frame. There is no generic way of doing this, each business is unique, but the following example illustrates the point.

Phase 1: Build an email list

James is in charge of marketing at a business software company. He creates a white paper on business software efficiencies and hosts it on a landing page where users can download the paper after opting in to James’s email list.

Metric: how many downloads/opt-ins are received.

Phase 2: Segregate into sub-lists

His email list eventually exceeds 100 opt-ins, so he begins trying to sell two of his company’s products: a customer relationship management (CRM) system, and a warehouse management system. He sends regular emails that give advice and guidance on the two products, all the while using analytics to measure engagement. Over a series of emails, he starts to identify (based on opens, click rates, enquiries etc) who on his list is interested in CRMs and who is interested in warehouse management. He then segregates the list into two sub-lists in order to send more specific content.

Metric: how many respondents are moved to a sublist.

Phase 3: Find out who is really interested

After a meeting with management, it is decided that in the short-term more resources should be placed on selling the CRM, because that sub-list is larger and more engaged. James then decides to host a free online webinar on the subject of choosing the right CRM. He promotes it to the CRM sublist, encouraging them to enrol.

Metric: how many webinar sign ups are received.

Phase 4: Discount an entry level product/service

During the webinar, and in a follow up email, he offers attendees a discount on an entry level service – a preliminary review of their existing CRM.

Metric: how many respondents take up the offer.

Phase 5: Sell high-end item

Finally, based on the outcome of the preliminary reviews, James’s sales team push the high ticket item – their CRM system.

ROI: number of sales.

Conclusion

Here’s the important takeaway point – a return on investment doesn’t necessarily have to be revenue. It can be anything you have gained from your marketing activity. In phase 3, James knows how many emails were sent promoting the webinar, and his metric tells him how many signed up. The investment is the cost of generating the emails, the return is the number of webinar sign-ups.

Furthermore, anyone who signs up to his webinar is a solid lead, because they are very interested in choosing the right CRM for their company. As James knows how much each phase cost his company, he can then assign a cost of acquisition for new customers, which is an important metric in itself.

The example above illustrates how keeping complete control of your marketing activities, and using metrics at every stage of your sales funnel, can tell you which returns originate from which activities.