To be an effective marketer you have to know what works, what doesn't, and allocate your resources accordingly. But how can you determine the efficacy of your marketing? It takes some math and analytics, but I promise it won't hurt. Let's consider a simple base case: you are marketing for an eCommerce company and your goal is to acquire sales through paid advertising. Keep non-paid and organic marketing out of the model for now.
Bear with swords for teeth driving a dump truck - effective or overkill?
First, choose a time interval that is long enough to be meaningful but short enough to be evaluated regularly. Let's say 24 hours. Then establish your benchmark. For each day, you are responsible for bringing in some number of sales. This is your daily sales goal [G]. Divide [G] by your on-site conversion rate. This is the number of new visits you need to your website per day. Multiply this number of visits by your daily CPC, averaged over all the paid networks you are advertising on. This is your daily spend [S]; what you have to spend each day to achieve your [G].
Now add up all the sales from the day you want to inspect. This is your gross revenue, a direct result from your [S] for that day. Multiply gross revenue by gross margin (as a percentage), this is your net revenue [R]. Now compare your spend vs revenue. If [R] > [S] congrats, you have a positive ROI. Take a moment to pat yourself on the back. If [R] < [S] then you have a negative ROI, this might be okay for now but you probably want to make it positive as soon as possible.
This exercise is what I call Efficacy Testing. The goal of Efficacy Testing is to give you a quick way to determine if what you are doing is working. Most businesses have more comprehensive models, but the logic is the same. Don't forget that you manage what you measure, so do Efficacy Testing on your most important channels on a regular basis.
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Now add up all the sales from the day you want to inspect. This is your gross revenue, a direct result from your [S] for that day. Multiply gross revenue by gross margin (as a percentage), this is your net revenue [R]. Now compare your spend vs revenue. If [R] > [S] congrats, you have a positive ROI. Take a moment to pat yourself on the back. If [R] < [S] then you have a negative ROI, this might be okay for now but you probably want to make it positive as soon as possible.
This exercise is what I call Efficacy Testing. The goal of Efficacy Testing is to give you a quick way to determine if what you are doing is working. Most businesses have more comprehensive models, but the logic is the same. Don't forget that you manage what you measure, so do Efficacy Testing on your most important channels on a regular basis.
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