Marketing > Determining My Marketing Goal
Determining My Marketing Goal
Every marketing campaign, whether it is pay per click, social media, or other online marketing strategy, needs a measure of success. Otherwise, you are just throwing dollars out and hoping that your business is growing as a result! Fortunately, online sales are very easy to track and attribute to your marketing efforts. All you need to do is calculate what a reasonable goal is for your business
A marketing goal refers to how much more revenue a marketing campaign needs to earn than it costs. We often express this as a ratio: If you hope to make $400 in sales for every $100 in marketing cost, then your goal would be a 4.
How do I know what my goal should be?
This is the big question every business owner needs to ask themselves before starting a marketing campaign. It depends on your margins.
Calculating Margin
If you don't already know your average margin per product, then you'll need to calculate it.
Let's say you sell a product for $100. If that product cost you $60 to make or buy wholesale, then your gross margin would be 40%. But your business also has overhead:
- rent & building expenses
- labor
- advertising
- office supplies
- taxes
Your final margin will be what's left over after you've subtracted all of your expenses, averaged out per product.
Margin = Selling Cost - Expenses
Let's say your business expenses run $9,000 per month, and you sell an average of 600 products per month, then your expenses come out to $9,000 / 600 = $15 per product.
This means that our example product costs you $60 (wholesale) plus $15 (overhead) = $75. If you sell it for $100, then your profit margin is 25%. $25 and is the most you would be willing to spend to sell that product (obviously you'd rather spend less than that! We'll deal with this in a bit).
We will now convert this profit margin number into an ROI goal that we can apply to your marketing campaign.
Calculating ROI
Continuing our example of 25% margin, we now need to use that to calculate our upper-limit ROI goal.
ROI = $ earned / $ spent
ROI means "Return On Investment". It is a ratio of the dollars earned from advertising to the dollars spent on the advertising. Every marketer needs to be given an ROI goal to know how to measure the success of a campaign.
Our example average product margin is 25%, so the most we would be willing to spend is $25 for every $100 in sales. This is an ROI ratio of $100 / $25 = 4 This is your minimum ROI goal. You will need to decide how much higher to set your goal than your lower-limit.
The Lower Your Goal, The More You Make
You may ask, "Why should I set my ROI goal at a 4, when I can set it at a 10 and make more money per dollar spent?" The answer is revenue.
The higher your ROI goal, the fewer avenues we have to get sales through marketing channels. We might be able to earn $1000 in sales while meeting an ROI goal of 10, but $5000 if the ROI goal were 4. Keep this in mind when deciding what you want your ROI goal to be. To maximize revenue, you want your ROI to be as low as possible, while still above your break-even point.
If you have different product lines with different margins, it may make sense to track those sales separately, and evaluate the success of different marketing campaigns with different goals.
