When choosing a performance marketing agency, business owners often aim to cut costs—it’s typically more affordable than building an in-house marketing team. Agencies offer access to top talent across various marketing specialties without the overhead of hiring and managing full-time employees.
However, working with an agency is still an investment, and you need to make sure you’re getting a good return on your investment (ROI). Here, we’ll go through what marketing ROI is, why it’s important to track, and how to ensure you’re working with your agency as best as you can.
What is marketing ROI?
ROI stands for ‘return on investment,’ and it’s used to calculate the value that an investment yields. Return on investment is considered one of the most useful metrics when analyzing a marketing campaign — you need to ensure that all efforts are generating leads, conversions, and new business.
Typically, ROI is calculated by the various key performance indicators (KPIs) that your campaigns are tracking. Marketing KPIs can be anything that’s important to your business objectives, and can include:
- Number of leads generated
- Number of conversions made
- Services or products sold
- Traffic to the website
- Search engine rankings
- Impressions
- Click-through-rate (CTR)
- Cost-per-click (CPC)
Tracking the success of your marketing efforts requires looking at various nuances. Looking at organic marketing efforts, such as content marketing, has many more factors to success — as opposed to performance marketing which typically involves paid activity. Because of the different factors, it’s important to look at marketing success holistically, so you can accurately judge whether your efforts are offering a return on investment.
Why is measuring ROI important?
All businesses and entrepreneurs need to be strategic about their performance marketing costs and efforts. You need something affordable that still delivers the most results. By tracking your KPIs and results, you’re able to make informed decisions about future marketing efforts.
Measuring your ROI also allows you to better control your marketing budget. The amount of revenue businesses allocate to marketing efforts has grown over the past few years. In 2023, companies spent 9.1% of their revenue on marketing, on average. As a general rule, B2B companies should be spending 2%-5% of revenue on marketing, which is significantly lower than the average.
Rather than continuing to grow your marketing budget, tracking your ROI allows you to see which efforts may not be working as well as others — giving you a better idea of where to allocate your revenue for higher returns.
When you’re working with a marketing agency, however, it can be more difficult to see exactly where your budget is going. Choosing an agency that collaborates with you, rather than simply doing the work for you, provides more transparency and accountability. This human-to-human approach lets you make informed decisions with your agency contacts, letting you scale efforts up and down as required.
Performance marketing metrics to measure
As previously mentioned, there are a few performance marketing KPIs or metrics that you should be measuring. Here, we’ll go into more detail:
Cost per lead
Cost per lead (CPL) is an important metric to track as it allows you to work out the cost of each acquired lead and potential customer — and look for any opportunities to rework and refine your strategies.
Our Literal Leads product, launched in 2021 in the early stages of Literal Humans, aimed to generate leads for businesses. Taking all costs into account, we generated a margin of $60,240. We found that for around 7% of expected revenue, clients could engage in high-performing selling that could capture high-potential leads and significantly drive new revenue.
Gross margin
Gross profit margin is the metric used to help make decisions about how best to allocate the marketing resources in order to effectively promote products or services. When working with a marketing agency, it’s important to fully understand what your scope of work is, and what services your budget will get you.
With this information, you’ll be able to calculate the revenue generated by your agency in comparison to the cost of the agency work to figure out your gross margin. Your agency should be working closely with you to optimize any marketing efforts to generate the highest revenue you can, through quarterly business reviews.
Transparency between agencies and clients — and being able to have open conversations — means that you’re more able to tweak campaigns and strategies as you would with an in-house team. This allows you to be able to search for opportunities to generate the most revenue.
Conversion rate
The conversion rate is the percentage of users who make a purchase or complete a desired action after clicking through from an ad, digital asset, or a web page via search engine results. Increasing conversion rate should be a key metric for your marketing agency, which will be able to calculate this for you based on their efforts.
It’s important that campaigns are optimized to improve conversion rates where possible, whether this is through paid or organic strategies. Our work with TGP International generated conversion rates of up to 3%, based on a three-pronged approach, which targeted Google Ads, Facebook Ads, and LinkedIn Ads for audiences spread across several Middle East countries. The average conversion rate for the hospitality industry currently sits at 2.2%, putting the Literal Human results above average.
Securing a human to human marketing approach
When it comes to searching for a marketing agency to partner with, you want to ensure that they’re able to deliver the tasks you need. However, an equally important aspect is the human to human delivery.
A human approach to marketing is crucial, as it allows you to move and change with the live results you see in your marketing efforts. Being transparent between all teams is ideal, as it means that key stakeholders and team members are able to make informed decisions about how best to proceed with a complete strategy.
For ideas on getting the most out of your agency partnership, check out our whitepaper on briefing an agency.
Open communication also means that teams and stakeholders work together to generate the highest amount of revenue possible — and always search for ways to optimize strategies. If you’d like to learn more about how our team can help you create a marketing strategy that maximizes ROI, book a free consultation session with us today. We’re humans, and we’re here to help.
