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What is a good ROI - The Marketing Leaders

What is a good ROI? 2 case studies to answer the question

roi Apr 21, 2021

By Nick Bottai - Co-Founder/Director @ The Marketing Leaders Ltd.

 

Did you read Andrea’s article? If not, I recommend doing so, not only because it’s well done but because I share what he says regarding the importance and the role of the ROI in measuring the success of your marketing activities.

Let me answer the question immediately. A good ROI is the one that drives you and your company/client to the goals set, aligned with the strategy.

Did you expect a number? To do so I should know a lot of parameters from each of you and, sorry, I don’t have magic powers… yet.

However, I can go through some examples, from different markets, industries and channels.

PREMISES:

  • In most cases, ROI is not linear. If your target is to increase your revenues in three years’ time, don’t assume you have a constant, consistent growth. It can happen; or it can be faster at the beginning or faster at the end of that time period. Track your metrics and use your brain to interpret them.
  • There are areas in which ROI can’t be measured directly.
  • When calculating the ROI, be sure to take into consideration all the costs and the market growth. If your ROI matches the market growth… then your efforts have not helped to improve the business beyond what would have already happened.
  • With the amount of data we have in these days, it looks easier to track everything and give meaning to every number. And if a number does not have one, you must assign it a meaning. It has to be like that! Wrong. Firstly, marketing existed and performed even with 10% of the data we have today. Then, track what has a meaning and if not, brainstorm to understand the meaning. Don’t force it because it will be just your point of view and you need the absolute POV.
  • In the case studies below, I used made-up parameters as I can’t give you the profit, cost, investment etc. of the client.

 

CASE STUDY 01 – DIGITAL MARKETING CAMPAIGN IN THE HOSPITALITY BUSINESS

Goal: raise the brand awareness of a hotel to reach a fully booked summer in 2 years

Starting: September 2010 - Deadline: August 2012

Average Room Cost: 10 - Average cost Room Year 2: 11

Investment = 2500

The market growth in YEAR 1 was -5%

We addressed the challenge of working on 2 strategies: digital communication and product configuration.

If the digital side was “easy”, we had to think about a traditional strategy too to improve the ‘product performance’ or the level of service provided to the hotel’s guests. Knowing the location, the surrounding areas, the environment and facilities, we highlighted an issue for the customers in relation to other available choices of accommodation: the location of the hotel was just a little too far from the beach. For guests, going to the seaside by car is a problem and the hotel is just too far by walking. So, we solved this issue by giving something different to the customers and offered them free bicycles to use during their stay.

what is a good ROI - Hotel Case study

The table above shows the overall result of the campaign and in the end, the ROI that the client focused on. From my point of view, I had to track different ROIs: website performance, TripAdvisor reviews, Booking visits and reviews.

All the investment was dedicated to rebranding and refreshing the website, a photoshoot session and buying bicycles. How can you track the ROI of a picture or of a bicycle (in this scenario)?

So, these are the metrics I was tracking (average per month):

Month

Start - 9

12

3

6

9

12

Website traffic

20

179

550

1200

800

400

Website Sessions

23

221

800

1500

1000

500

TripAdvisor reviews

0

0

15

30

50

50

 

The strategy was focused on rebranding, repositioning and timing.

With an average conversion rate of 2% from the website, I needed to have at least 1000 visitors a month to have 20 bookings. The average booking length is a week and the hotel has 9 rooms, so 36 bookings in this prospect were the top goal to achieve. We also needed to take into consideration that people book with some month in advance.

The prospect worked and as you can see we achieved the KPI set… with a bonus. We had a conversion rate higher than the average, maybe for the photoshoot, maybe for the TripAdvisor rating, maybe for the free and new branded bicycle we offered to the hotel customers.

And here is the question again: what was the ROI of the bicycles or how much impact did they have?

Some elements can’t be tracked properly. Yes, we could have prepared a survey for customers asking if the bicycles were the decision factor, or the new pictures, or the new website… but how can they answer? Do they really know?

For sure, all these elements together played a huge impact, and, in the end, all the metrics were aligned with the KPIs, milestones, goals and ROI.

You can easily calculate, the ROI. It’s so high because:

  • It was the first hotel to invest in professional marketing in that location.
  • All the staff (family run business) is customer-focused. It was easy for customers to leave a review because they felt the difference.
  • We were able to differentiate from the competitors and to maximise the resources thanks to an effective segmentation strategy.

 

TAKE AWAY

The ROI increased massively in the first year and less in the second and then the third. Usually, it happens when the starting point is “below the market”.

A good ROI for me in this company should have been bigger than the “Average Market ROI” in three years taking into consideration:

  • Market growth
  • Organic growth
  • Variable and Fixed increasing costs
  • Starting point and Company capacity

 

CASE STUDY 02 – DIGITAL STRATEGY For AN E-COMMERCE COMPANY

Goal: Triple the sales in two years

LTV: 10

Investment = 1500

Expected ROI in Y2 = 3:1

Market growth = +1.8%

what is a good ROI - eCommerce case study

You can see, the full effects of the marketing strategy were realized in the second year. This business was already in the market and had a strong presence. However, they were not succeeding in attracting new customers; the website was visited by the current customers only. We can see it by the high conversion rate in Year 0.

The strategy focused on 2 major factors:

  • Increase the website traffic.
  • Increase the LTV.

To increase the traffic, we changed the website with a new layout, new product categories, a different funnel, SEO and PPC campaign. There were different teams involved, from graphic designers to UX analysts, SEO and PPC specialists, translators and so on.

To increase the LTV, we adopted a new CRM strategy, segmenting the customers and offering tailored offers and discounts.

In the first year, the ROI was close to zero; actually, if we consider all the costs and compare with the market growth and market average ROI, it was negative.

But, in the second year, all the efforts (and trust) paid back and in the end, we not only achieved the result, in fact we did better than expected.

The key factors were to increase the traffic whilst maintaining the conversion rate at the maximum level: monitoring the correlation between the two of them we could obtain a constant growth, even if tiny at times.

 

TAKE AWAY

What can this second example teach you?

ROI must be monitored but only fully evaluated at the end. You have to face your efforts and performance at the end of the race. Think like a marathon athlete: the goal is to be first at the finish line, not at the end of every km.

The growth is not linear and sometimes it takes time for a strategy to take effect. Be patient, monitor the path to be sure everything is aligned to the plan and celebrate… but only at the end!

 

So, to finish, what is a good ROI?

As Andrea said, everything more than 1 is a good one. The secrets are:

  • Use the right formula
  • Be patient

BE SURE to take into consideration the market growth, your competitor growth, the average market ROI, the added costs (variable and fixed) you might have incurred for the campaign/plan. If the ROI it’s still >1, well done: you have created value!