How to Calculate Client ROI for Your Business
How do you calculate client return on investment (ROI) for your business? That’s the question that many business owners want to know. After all, ROI is one of the key ways you can measure the effectiveness of your sales processes and marketing efforts. However, calculating client ROI can be tricky.
That’s why we put together this post to help you figure out your business’ profitability. Keep reading to learn how to calculate your client ROI.
What Is Client ROI?
Your client ROI is the average amount of money you earn from your clients. This helps you understand how much revenue your clients are bringing in compared to what they cost. It’s also a very important metric that will help with budgeting, staffing, and strategic business decisions.
What Makes Client ROI Important?
Despite being a relatively new measurement in the marketing world, the fact is that ROI has become an integral part of measuring marketing success. This means that if you fail to measure your efforts when marketing your business, you can’t be sure that they are the best ways to achieve your goals.
We can all agree that if you want to maximize success for your business, then measuring client ROI is a must!
How Do I Calculate Client Return on Investment?
Here is a simple case study that will show you how to calculate client ROI:
1. Client cost: $10,000/month
2. Number of clients: 100
3. Average value per client: $100/month
4. Cost of marketing channels: $50,000/year
5. Monthly Marketing Cost = Monthly Marketing Costs / (of Clients * Average Value Per Client)
6. Monthly Marketing Cost = $5,000/month * 100 clients * $100 / month
So, looking at the case study, you’ll notice that your monthly marketing cost equals $5,000. This may not seem so bad – but if you only have 100 clients on average for this product or service, your ROI for the month is only $500. Of course, you can increase your number of clients to get a higher ROI on the management side – but even then, you’re looking at having to spend more money just to get that return!
What Can You Do to Improve Your ROI?
Find a more effective way to market your product or service. Sometimes this can be through testing new social media campaigns or investing in a new marketing strategy. It all depends on what you are looking to acquire for your return!
What Is Considered a Good ROI?
ROI is all about how your return relates to your costs. As your costs are directly related to the budget you put towards marketing, there is no set “ideal” ROI. Having said that, here’s a reasonable guideline:
Low ROI or High Marketing Costs = Business isn’t profitable
High-Medium ROI with Relatively Low Marketing Costs = Business is doing very well
Low ROI with Very High Marketing Costs = Business likely won’t make it.
So, as long as you are making money on your return, then you are in business. A good way to measure how much money your return is making can be seen by looking at how many clients you have, their average value, and the cost of marketing for each client.
If you’re not sure where to start when it comes to measuring ROI with your clients, then remember that it is all about finding a balance between what you can spend and how much your clients are worth to you!
Benefits of Measuring Client ROI
- Helps build a more effective marketing strategy
- Ensures that marketing efforts will be looked at carefully. By knowing if a specific marketing effort is or isn’t working, business owners can then move on to the next one without being stuck in an endless loop of ineffective advertisement.
- Gives businesses a better idea of how much they’re making off of their clients.
- Helps you expand your clientele by knowing what marketing efforts work best for your business
- Helps you cut down on marketing costs by knowing what works best for your business.
- Helps you prioritize your lead nurturing efforts.
As you can see, calculating client return on investment isn’t easy. It takes time and patience to research, test different marketing strategies, and determine what works best for your business/clients. Just remember to keep a close eye on your marketing costs and find a balance between how much you spend vs. what your clients are worth to you!