Content marketing is growing in popularity as a method to engage customers and generate leads. Research shows that 78% of prospective clients prefer to learn about businesses through articles and content distribution rather than traditional ads. But how to measure the ROI of content marketing? This article will give you the formula.
Creating engaging content takes time, money, and resources, and many small businesses don’t budget for it, erroneously believing that it’s not as important as direct advertising campaigns.
Even those companies who do write blogs and maintain a social media presence don’t have a clear picture of whether their content distribution is bringing success.
It’s difficult to calculate the return on investment (ROI) of content marketing. It takes time to cultivate a relationship with prospective clients, and a prospect can follow a business for a few months before ultimately becoming a client.
Additionally, 38% of businesses have a content marketing strategy, but it’s not documented.
It is wise to invest in your content distribution. The statistics on content marketing show that 76% of B2B marketers say that videos play a significant role in increasing their sales, and 91% of consumers appreciate receiving promotional emails from companies they have bought from in the past.
In fact, 30% of marketers think that videos are even more important than having an actual website!
The Evolution of Content Marketing
Advertising has changed drastically over the years, from paper ads, radio jingles, and TV commercials broadcasting to the general public. Companies now have the capacity to target their intended audience with much more effective results.
- Content Distribution - dispensing content to the public through various media channels, including blogs, social media, white papers, podcasts, emails, interviews, and pay-per-click content.
- Search Engine Optimization (SEO) - improving your site’s traffic to attract a more relevant and larger audience of leads.
- Content Marketing Automation - automates your content distribution to ensure a steady stream of relevant and up-to-date content.
How successful is your content marketing, and what is your ROI?
Determining the ROI of Content Marketing
Your ROI, the return on investment, determines how much benefit you receive from your content marketing. To determine your ROI in any investment, divide the net profits by the amount invested.
ROI = (Gains made from Content Marketing - Cost of Content Marketing) / Content Marketing Cost
For example, if your business spends $1000 a month on content marketing and it results in $2000 of sales each month, your ROI would be (2000 - 1000) / 1000, or $1.
That means that for every $1 spent, you profited $1 for a 100% return on your investment.
Calculate the Cost of your Content Marketing
In order to determine your content marketing ROI, you will first need to calculate the total amount you spend on your content marketing each month. This includes your:
- Content distribution costs: producing podcasts, email blasts, marketing automation, blogs posts, using the best webinar platform, creating white papers, etc.
- Salary of employees or outside contractors working on your content, such as bloggers, writers, videographers, and even your sales team.
- Monthly fees for content tools such as blog hosting, SEO, website extensions, and any software used specifically for creating your content.
The total cost is your investment amount.
ROI Calculation #1
It can be difficult to calculate the exact number of sales or clients you gain through content marketing, but the following method will help you calculate a pretty close estimate of what you can expect:
- Calculate your conversion rate of leads to new customers. Look at the leads from the past ninety days and compare them with the new customers. For example, if you had 5,000 leads from January through March and 500 new customers during this time, your conversion rate is 10%.
- Keep in mind that if you have a longer sales cycle, you might want to look at the previous cycle’s leads. For example, if your sales cycle is 90 days, compare the leads from January through March to the new customers from April through June to calculate your conversion rate.
- Determine how many leads your content generates monthly. Take into account your different content distribution approaches, including blogs, social media, videos, and webinars.
You may be surprised to find which approach brings in the most leads for your company. 73% of content marketers say that webinars generate the best leads, and 68% found that videos gave them a better ROI than Google Ads. - Now that you know how many leads your content marketing produces and how many leads lead to customers, you can estimate the number of new customers and sales you can expect to gain from your content marketing efforts.
For example, if your content brings in 1000 leads and your conversion rate is 10%, you can expect to gain about 100 new customers a month. - You now have all the data you need to evaluate the cost of bringing in a new customer.
Take your total monthly content marketing cost and divide it by the number of new customers per month.
ROI Calculation #2
Proving the ROI of content marketing involves a detailed analysis of how much revenue your content generates compared to your total investment. To demonstrate the return on investment (ROI), you need to measure the business value your content brings, which includes tracking various metrics and aligning them with your content marketing goals.
First, calculate the total investment in content marketing, including costs related to content creation, distribution, and promotion. This gives you a clear understanding of the investment value.
Next, assess how much sales revenue your content marketing efforts generate. For B2B companies, this often involves tracking lead costs and conversions from content to sales. You can measure the revenue data by tracking how much revenue is attributed to leads generated by your content.
To measure the broader impact, consider SEO metrics like organic traffic, which reflects how well your content attracts your target audience. Increased traffic can lead to more conversions, thus bringing in more money.
It's also important to evaluate brand awareness—a key outcome of effective content marketing. Even if not immediately reflected in direct sales, improved brand visibility can lead to future revenue streams.
Finally, calculate ROI by comparing the return (revenue generated) with the cost of content marketing efforts. This formula can be expressed as:
ROI = (Sales Revenue - Total Investment) / Total Investment
This calculation helps you understand the cost-effectiveness of your strategy, showing how well your content efforts are paying off in terms of conversion goals and overall business value. By regularly analyzing these metrics, you can optimize your content marketing strategy to drive higher returns.
The Customer’s Value
You know how many customers you can expect to bring in, but how much value will the average company bring to your business?
If you have been tracking customer data, such as through a store loyalty program or by storing their demographic data, you can evaluate how many customers are repeat customers, how long do they continue to patronize your business, and what is the average sale amount.
For example, if your average customer spends $1000 a year and continues purchasing from your company for an average of 2 years, the customer has a $2000 lifetime value to your company.
Your ROI of Content Marketing
You now have all the data you need to calculate your ROI of content marketing.
For example, if your total content marketing costs are $5,000 a month and is generating 500 new customers, your cost per new customer is $10, and they will generate $2000 over two years.
Keep in mind that your amounts are not static, and they can change depending on many factors, including a change in your marketing strategy and customer service, which can impact the length of time a customer will remain loyal to your company.
To Summarize
Content marketing can be a very profitable strategy. Social media, webinars, videos, blogs, and targeted emails can generate leads that result in customers and sales. Calculate your ROI of content marketing using the formula above to prove that it is profitable and worth investing your money and resources on it.