HOW TO CALCULATE YOUR SALES AND MARKETING ROI (AND WIN YOUR FINANCE DIRECTOR’S HEART)

As marketing has gone digital it has become easier to measure ROI.

The knock-on effect is that marketing is increasingly seen as a revenue driver rather than merely a necessary evil, so they in turn will increase spending on technology more than any other part of business in the near future.

Portrait of young businessman with toy paper wings. Success, creative and startup concept. Copy space for your text
Your meeting should look something like this.

But the battle isn’t won. Proving value to the finance director and the wider management board is still tough. Old ideas about the ineffectiveness of advertising still linger, while complex buying journeys mean it can be difficult to tie sales back to specific marketing efforts, particularly for inbound marketing.

So what should you do before you approach the boss?

Get your hands on the company’s budget

It’s critical that you get your hands on the company’s budget so you know how the bottom line is being calculated and you’re speaking the same language as senior management. This will help you see what all the costs and revenue streams are in the company so you can start to really get to the heart of marketing ROI.

Having the company’s budget is also critical because it shows you how finance think. You will often find they have a different view of organisational structures when it comes to revenues and costs than other divisions do. They will have their own ideas of who’s bringing home the bacon and who’s a drain on resources.

Calculate all the costs of sales and marketing

Armed with the company’s budget, figure out exactly how much it costs to run the marketing department.

Important things to include:

  • All staff costs – don’t forget to include bonuses, tax, pension and benefit contributions
  • Office costs – if you can figure out how much the sales and marketing team contributes to company revenue per square foot, you’re about to win the finance director’s heart
  • Technology costs – whether as complicated as marketing automation or as simple as Microsoft Office, know how much you are spending in this area
  • Agency fees and retainers – make sure you have accounted for all agency fees
  • Advertising and collateral costs – make sure you have all your campaigns covered, as well as the costs for printing collateral and supporting material
  • Miscellaneous expenses – very important if your team get out of the office a lot

 

Figure out the incremental impact of marketing

According to Lenskold Group (who provide an excellent calculator on this topic), the key components to calculate the incremental impact of marketing are:

  • How many incremental leads are generated each year
  • The average revenue per sale
  • The net close-rate of leads
  • The average gross margin for the product

By multiplying the four together, you’ll be able to calculate the incremental gross margin that your sales and marketing team provide.

Subtract the costs of sales and marketing from the incremental gross margin

When you know the total costs and the incremental impact, you’ll be able to work out how much value your marketing and sales team provide.

Once you have this figure, always have it to hand and know what you’re going to do to move the needle over time. This will help you gain support from the board to carry out the activities and investment you need to grow your company.