What is roi in marketing?

What is ROI?

Return on investment (ROI) is an essential metric used to assess the profitability of an investment, such as marketing campaigns or strategic business plans. It compares the net profit generated to the investment cost using the following formula:

ROI = (Net profit / Investment cost)

Typically, ROI is represented as a ratio or percentage. In marketing, it’s used to determine which marketing efforts led to the most revenue for the least amount of money.Benchmarking good ROI is difficult since every business is different in its industry standards. ROI is generally deemed successful when it meets or surpasses the specific goals set for an initiative.

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How to increase the ROI of your marketing campaigns

The goal of a marketing campaign is to generate revenue and increase ROI. To maximize the ROI of your marketing strategies, follow these steps:

1. Segment your audience

Your customers have diverse needs influenced by location, demographics, and preferences. To increase the relevance of your campaigns, group your audience into distinct segments and tailor your messages accordingly.

There are various ways to segment your audience, and your approach should differ for each segment. For example, your strategy for engaging customers who have visited your website without making a purchase should be different from how you interact with those who have recently bought a product.

2. Improve your customer acquisition strategies

To attract customers, consider who they are and how they spend their time. If you’re targeting a younger demographic, reaching out through SMS rather than email is likely a better idea, considering how young adults spend their time.

Experiment with your approach to identify the most effective customer acquisition strategies, but also focus on proven methods like:

Engage on social media: Be creative on social media and focus on building a community around your brand rather than just pushing sales.
Offer incentives: Experiment with offers, such as gifts with certain purchases, to increase average order value and improve acquisition efficiency.
Invest in SEO: Use search engine optimization to target relevant keywords and drive organic traffic to your site.
Balance owned and third-party channels: Use a mix of owned channels like email or SMS and third-party channels like PPC to maximize reach and control.

3. Intensify your customer retention efforts

Attracting new customers often costs more than retaining existing ones. Existing customers are more likely to purchase premium products, make repeat purchases, and refer your business to others.

Investing in strategies that make your VIP customers feel recognized and valued is an excellent way to make sure you keep your most loyal customers for a long time. You can achieve this through:

Personalized web experiences: Tailor the website for VIPs by offering exclusive, relevant experiences, like rewards, that make them feel seen and appreciated.
Enhanced loyalty programs: Provide VIPs with exclusive perks, increasing their engagement and shifting them towards becoming repeat purchasers with higher lifetime value.
Exclusive subscription program benefits: Offer personalized discounts and benefits within subscription programs to make the experience more convenient for the most loyal customers.
Targeted push notifications: Send timely, relevant notifications that capitalize on key moments—like birthdays or anniversaries—keeping VIPs engaged and reminding them of their value.

4. Send automated messages at scale

Converting website visitors into paying customers requires constant engagement. To engage with your audience and generate revenue, automate messages triggered by online behaviors and collected data.

The most reliable automations that can generate revenue for your brand are:

Abandoned cart automation: Recapture potential lost revenue by reminding customers to complete their purchases.
Replenishment automation: Increase repeat purchases by reminding customers when to reorder products they frequently buy.
Back-in-stock automation: Capitalize on high demand by notifying customers when out-of-stock items become available again.
Personalized automation: Build customer loyalty and drive sales by sending personalized birthday messages with special offers like free shipping or coupon codes.
Cross-sell automation: Drive additional sales by recommending complementary products based on customers’ previous purchases or browsing behavior.

5. Make data-driven decisions

Analyze customer behavior, preferences, purchasing patterns, and other valuable data and tailor your marketing strategies to increase ROI by doing the following:

Track flow performance: Measure the success of each SMS or email flow and refine strategies based on dynamic data.
Predict customer behavior: Predict customer needs and automate your flows with Klaviyo AI to reach out to your customers right before they make their next order.
Perform A/B tests: Optimize your marketing content by testing different versions to see what drives the best results.
Segment your audience: Identify high-value customers, group them into segments, and target them with personalized, timely-sent offers.

Why you should focus on increasing ROI

Increasing the ROI of your marketing campaigns offers the following benefits:

1. A focus on ROI increases your profit margin

If you understand who and where your customers are and focus your campaigns on acquiring and retaining them, you can significantly increase your profit margin. By targeting the right audience with the right flows, like birthday, promotion, or replenishment automations, you reduce wasted resources on ineffective marketing efforts and allocate your budget more efficiently.

By focusing on automated email and SMS flows, like limited drop promotions and holiday sales, brands like Viori have managed to 40x their ROI in six months while simultaneously increasing their subscribers by 62%.

2. A focus ROI promotes sustainable business growth

Efficient resource allocation is most likely to lead to business growth and increased customer lifetime value. Instead of spending money on paid or PPC ads and focusing on short-term customer acquisitions and one-time sales—consider the bigger picture.

Nurturing and retaining your existing customer base through personalized flows and organically building your customer base can yield better results over time. For example, with every repeat purchase a loyal customer makes, their CAC drops, CLV increases, you generate revenue, and your business steadily grows.

3. A focus on ROI leads to better decision-making and happier customers

You will make smarter decisions across the board if you focus on improving your ROI.

By continuously analyzing the return on investment for each marketing effort, you can identify what works and what doesn’t, optimize your approach, and allocate resources more effectively while minimizing mistakes.

The better your marketing efforts, the happier your customers will be. If you dial in your flows and send targeted, personalized messages that resonate with your audience or set up two-way communication through a toll-free number to elevate your customer service, your customers are bound to stay happy and buy from you again.

Limitations of ROI in marketing

While ROI is valuable when determining the profitability of marketing campaigns, it has the following limitations:

1. ROI relies on data accuracy

When the data used to calculate ROI contains gaps or inconsistencies, it can be difficult to gauge the profitability of marketing campaigns accurately.

2. ROI has a short-term focus

ROI estimates often prioritize returns that manifest quickly. This can undervalue long-term marketing strategies like brand awareness campaigns, which require more time to generate results.

3. ROI doesn’t consider risks

ROI focuses primarily on the profitability of an investment and doesn’t account for variables like market trends, competition, and the fundamental risks associated with launching marketing campaigns, like budget overruns, regulatory and compliance issues, or even poor timing.

Adopting tools to increase the ROI of your marketing campaigns

With over 350 pre-built integrations, Klaviyo helps boost ROI with:

Flows: Set up automated, personalized messages, such as welcome emails to new subscribers or follow-ups for abandoned carts.
Segmentation: Group your target audiences based on behavior and preferences and send targeted campaigns that resonate with each recipient.
Campaigns: Create personalized emails, SMS, and mobile push campaigns product launches, review requests, or discounts and special offers.
Customer profiles: Get in-depth information on customers’ actions and preferences and adjust your marketing strategies accordingly to increase engagement.
Reporting: Get information on click rates, open rates, and conversions generated from your marketing campaigns.

Ready to increase the ROI of your marketing campaigns? Sign up for Klaviyo today and unlock the tools you need to acquire and retain customers.