2 min read

What is Your ROI on Sales and Marketing?

2019 September 6 16:51 GMT-06:00

What is your ROI on your marketing and sales efforts?  If you have a call center working for you and what is the ROI on that? So what is the return on investment for marketing and sales for you? So let’s cut straight to the chase. A good marketing ROI is a ratio of 5:1.

The Golden Ratio for Marketing and Sales ROI is 5:1

For every dollar that you spend on marketing and sales, you should get $5 back in return. Now that's considered the middle of the curve, so that's considered average. A really exceptional marketing campaign can have a return of 10:1 but that's more the exception and not the rule.

Marketing and Sales Cost Factors

Now having this marketing and sales ratio, it will give you a rule of thumb to go by to see how well you're doing for your marketing efforts. Now, what type of marketing costs do you factor in to this ratio? You would put in your variable expenses, so you wouldn't include personnel costs, which is a fixed cost. These are your variable costs:

  • Marketing agency investment
  • Call center investment
  • Google ad words
  • Facebook Ads campaign spend
  • Display ads investment
  • Outside blogging and content investment
  • And if you have an outside social media manager, your social media management costs.

Why 5:1 is the Preferred Ratio for Marketing and Sales

If you're getting a 2:1 ratio, that would be really bad because you wouldn't necessarily be covering the cost of making your product and marketing it. So at a minimum you want to be able to cover the cost of making your product and marketing it.

Depending on your costs of goods sold and your economics really help you drive whether your marketing and sales ratio should be higher or lower. For example, if you put $100 into marketing a $200 product, but it costs you $100 to make that product, you're breaking even. You’re not making a profit.

Customer Total Lifetime Value

So this is why a ratio of marketing and sales ratio of 5:1 is average and 10:1 is exceptional. Now remember, we're also taking the total customer lifetime value into account in this equation. So for every $1 you spend, you should get $5 in return. Now that $5 should be your total customer lifetime value.

It should not just be the first transaction that your customer has with you. It should be a total customer lifetime value. To illustrate, if you sell a book and you have multiple titles for sale, your total customer lifetime value isn't just the first book that a customer bought, which is $5. It could be  $30 or $40 when he buys subsequent books from you.

If you're selling a software product or a SaaS product, it's not just the first month of revenue, it's the entire contract length that they decide to buy your product. For example, if you first acquire a customer for Facebook ads, you should still contain to credit the Facebook ad campaign for any additional sales you make for that customer.

Now, this 5:1 ratio is just a pass fail test. It's a simple rule of thumb. You can decide whether you want that rule of thumb to be higher or lower than five to one.

Remember what the ultimate goal of marketing and sales is to grow your revenue, which is done to grow your business. It's to grow your business and that's what we help you do.

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Islin Munisteri

Written by Islin Munisteri