Today I had a conversation with a client about return on investment (ROI). She’s been a Facebook ads client off and on for about 18 months as she engages me whenever she has major promotional activities or a new program to launch.
Our latest ads did really, really well in terms of bringing new people into her audience and converting into buyers. Which is GREAT and worth celebrating.
Then this client asked me a really great question —
“Michelle, as I’m looking at the ROI for this advertising vs. ROI on other things I do like FB/IG lives, speaking, normal social media, blogging. Linkedin cold outreach and whatnot… how do I compare them? How do I know that spending money on Facebook ads is the RIGHT thing for ROI vs. all the other things I could be doing…especially when some of those don’t cost me anything out of pocket?”
This is a GREAT question! I want to break this down for you just like I did for my client because it’s important to have a good grasp on this when deciding and prioritizing where you spend your time and money to grow your business.
Biggest Show Takeaways:
- Any business owner deciding where to spend resources — money and time — needs to understand how those decisions impact revenue. That’s why ROI is so important to measure.
- First, let’s talk about how you calculate ROI.
- The ROI formula is pretty straightforward; You take your revenue – marketing costs/marketing cost.
- For example, let’s say your revenue was $20,000 and your marketing cost was $2,000
- The formula would be $20,000 in sales: $2,000 = $18,000/$2,000 or 9x ROI which is a fantastic ROI number. It basically means for every dollar you spent on marketing, you got $9 in return.
- The problem for many small businesses is that it’s not as easy to identify all the marketing costs that go into your sales.
- For example, let’s say you this month you do $20,000 in revenue and for simplicity’s sake, we’ll say this is just from new clients. So you know that your revenue number is $20,000
- Now, let’s say you did a whole bunch of things in the month like:
- LinkedIn cold outreach
- Daily Facebook, LinkedIn and Instagram posting schedule (some are evergreen and some are new posts)
- 2 Facebook Lives that you re-purposed into Instagram + LinkedIn videos
- 1 podcast interview
- 4 blog posts
- 8 emails to your email list
- 10 sales calls
- $500 of Facebook ads
- As you can see from this example this can be really tricky to know where exactly the new sales come from. Was it Facebook ads? Cold outreach on LinkedIn? Emailing your list? And what is the ROI on your marketing efforts?
- Most people would say the cost of marketing for the month was $500 for Facebook ads, but that doesn’t factor in all of the time spent on other marketing.
- When I’m doing marketing activities that take my TIME but not necessarily my money, I assign a dollar value to my time.
- To keep everything with easy to calculate numbers, I’ll just assign the cost of one hour of TIME as $200.
- Let’s go back to the list of activities and assign TIME and DOLLAR costs to each:
- LinkedIn cold outreach let’s say I spend 1 hour a day every working day on this or 30 hours a month. So I’d take $200 x 30 hours for a total cost of $6,000. (Now, this is the point when many people start to FREAK out and say things like: NO WAY that costs me that much. Well, I want you to take the amount of money you charge clients to work with you and divide that by the number of hours you work. What’s your dollar per hour number? That number might surprise you — and knowing the number will help you understand what it costs to do ‘other’ activities.)
- Daily Facebook, LinkedIn and Instagram posting schedule (some are evergreen and some are new posts) — let’s say this is two hours per week or eight hours for the month.
- 8 hours x $200/hour = $1,600.
- Two Facebook lives that you re-purposed into your blog + Instagram + LinkedIn videos. Let’s say that each video took you one hour to plan, one hour to do and one hour to re-purpose onto the other platforms.
- 2 Facebook lives x 3 hours each = 6 hours of work x $200/hour = $1,200.
- One podcast interview that took one hour to do a pre-meeting, one hour to record and one hour to write an email + social media to promote.
- 3 hours total x $200/hour = $600.
- Four blog posts that each take three hours to research and write, one hour to put onto the blog, one hour to create the social media + emails to promote.
- 5 hours per blog post x 4 blog posts = 20 hours per month x $200 = $4,000.
- Eight emails to your email list that each take an hour to write + put into your email service provider
- 8 hours x $200/hour = $1,600.
- $500 of Facebook ads that someone else runs for you that you pay $1,500/ month for a total of $2,000 in costs.
- If we add all these up, we get $17,000 in ACTUAL costs for $20,000 in revenue from 10 sales calls.
- That number sounds a whole lot different than spending $500 on Facebook ads for a $20k month, doesn’t it? You can see how when you start calculating your TIME, it makes a big difference.
- The next question to ask is what contributes the MOST to making these sales? And, on the other hand, what contributes the LEAST?
- You don’t have to do it all. In fact, doing it ALL is probably part of what is leading to fewer sales because your time is spread so thin.
- Let’s say you’ve got some basic tracking in place. You ask new clients how they heard about you and what got them interested in working with you, you track Google Analytics on your website and you track your leads from Facebook ads and LinkedIn outreach. After you review everything, you discover that your top lead sources are:
- Facebook ads.
- Referrals from others like past clients and peers.
- Two older ‘top performing blog posts’.
- Your already created marketing funnel with emails that lead to a sales call.
- Sales calls.
- Armed with this basic information you’re able to adjust the next month to focus JUST on the things that drive in new business. So you do the following:
- $1,000 in Facebook ads + $1,500 for a Facebook ad specialist to run your ads
- $2,500 and your run ads to your 2 older top performing blog post, also deciding to NOT create any new blog posts this month.
- Outreach to past clients + peers
- Spending 2 hours per week = 8 hours x $200/hour = $1,600.
- You use your marketing funnel to get your Facebook leads ready for a sales call at no additional cost to you
- With this narrower marketing focus, you end up investing $4,100 in marketing between time and money BUT because you spent more on Facebook ads to attract new people into your audience AND had more time to do more sales calls you ended up with more sales, so your monthly revenue went up to $30.000 for the month.
- Your ROI: $30,000 of revenue – $4,100 in marketing costs = $25,900.
- $25,900/$4,100 = ROI of 6.3 or for every dollar spent you get a return of approximately $6.30.
- Plus, we eliminated hours and hours of marketing work that wasn’t resulting in more sales in this example, while increasing revenue by $10,000.
- Only when you get these insights will you be armed with the information you need to run your business and make good marketing choices moving forward.
- Create Profit Without Worry – one system at a time. I’ll show you how to attract a steady flow of buyers without all the hustle with this free download → 5 Steps To Profit Without Worry.
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