Why Measuring Marketing ROI Is A Tough Balancing Act for SaaS Companies

Published on

October 23, 2023

Growth
8 min

Why Measuring Marketing ROI Is A Tough Balancing Act for SaaS Companies

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In November 2022, the booming tech era came to a halt. 

For over a decade, the ease of borrowing money had venture capitalists injecting money into tech startups. The industry was the go-to for high-paid job opportunities and soaring stocks. 

Today, SaaS companies find themselves strapped for cash. Companies have laid off employees, restructured teams, and even slashed entire departments. 

You can probably guess that marketing is one part of a SaaS business that’s susceptible to dwindling budgets. Companies are quick to trim down on marketing to cut costs and achieve profitability.

So, under increasing pressure to perform, SaaS marketing teams must be able to show a positive return on their marketing efforts. 

“Do more with less,” as they say.

In this article, we’ll explain the complexities of measuring SaaS marketing ROI and how to best measure and improve ROI for your different marketing efforts. 

SaaS Marketing ROI Explained

First of all, let’s define marketing ROI. 

When we boil it down, marketing ROI is a simple concept. It’s the return on investment from the amount a company spends on marketing. You may have seen it referred to as MROI or ROMI (return on marketing investment). 

To calculate ROI, subtract your marketing cost from sales revenue. 

Then, divide by marketing cost. 

This formula can be used to assess both specific marketing efforts or to assess overall marketing ROI. 

Formula: (sales revenue - marketing cost) / marketing cost 

SaaS Marketing ROI

Let’s say your marketing budget is €150,000 per year, and you made €1,000,000 from this budget.

Your ROI is (1,000,000-150,000)/150,000=5.67.

In other words, each euro spent on marketing brought €5.67 in sales.

But you might already be seeing a problem here.

This simplistic way to measure ROI is at best, optimistic, and at worse, completely wrong.

How can one be certain that the revenue comes from marketing? If marketing were to stop, would this revenue still exist?

So let’s jump into the heart of the matter: how to actually measure ROI. Because this, my friend, is a not-so-simple matter.

Why Measuring ROI Isn’t That Straightforward 

While the concept of marketing ROI is simple at its core (sales revenue - marketing cost) / marketing cost), actually measuring marketing ROI is anything but straightforward. 

Let’s look at some of the complexities. 

Deciding What To Measure 

First, you must determine what to measure. What all should you be factoring into “marketing costs?”

When it comes to assigning a number to your marketing investment, it’s important to consider the full cost of marketing. For example, don’t forget to include time spent by staff. 

But taking the whole budget into account isn’t enough.

You may also want to consider opportunity cost since money spent on marketing means less money spent elsewhere.

Next, consider the fact that long-term success of a company is about more than short-term sales revenue. 

It's easy to think about ROI in terms of sales revenue alone, but immediate sales revenue is only one goal out of several, right?  

👉 For example, sales revenue down the line will be improved by your current marketing efforts that go towards increasing brand visibility and reputation.

Not to mention sales cycles: if your product has long sales cycles (think 3, 6, or even 12 months), the revenue you’re getting now is potentially influenced by your marketing from 12 months ago.

Since we can’t analyze everything through revenue alone, we must consider other metrics that will vary depending on which marketing channel we’re talking about. Consider the “Three Rs” framework which is helpful in assessing marketing performance. 

Reach

Did your campaign reach its intended audience?  

On social media, reach will manifest as views and impressions. Think organic search impressions for web content and open rate for email campaigns.

Resonance 

Did your content actually connect with the audience that it managed to reach?

This can look like average on-page time for a blog post, watchtime on YouTube, or social media likes, comments, and shares. 

Reaction 

Did your campaign influence your audience to take action? 

We can look at metrics like sign-ups for a newsletter, demos booked, or conversions. 

(If you want more of these types of tips, consider reading some evidence-based marketing books. This specific example was brought to my attention while reading Eat Your Greens).

Following this type of framework, you’ll realize that not every marketing action is made to generate revenue - some things only go after reach - which is perfectly fine.

Here comes our second problem.

Not Everything Can Be Measured

More often than not, under-pressure marketing teams will opt to do more of what can be measured and less of what cannot be measured, but this isn’t necessarily the best idea in the long run.

Consider a marketing team running targeted ad campaigns on social media. 

Let’s take Jessica, for example. She’s a millennial woman who loves making fancy iced coffees at home. She spends time researching different ingredients, techniques, and recipes online. 

Jessica has been wanting to buy a cold-brew coffee maker for some time now.

Let’s imagine she receives a targeted ad while scrolling through her Instagram from a company selling cold-brew coffee makers. 

Jessica is immediately captivated, clicks on “buy now,” and then orders the cold-brew machine to her home. 

It’s easy to conclude there’s a direct link between the targeted ad and the sale. But what the company doesn’t take into account is that Jessica has been interacting with the brand’s online content for months now. She regularly uses their recipes, tips, and tricks for making iced coffees.

So yes, Jessica ultimately made her purchase via a targeted social media ad. But, she wouldn’t have been compelled to buy the cold-brew machine if it weren’t for her established relationship and awareness of the brand. 

Plus, there’s a chance Jessica would have bought the product anyway—targeted ad or not. 

👉 When looking at marketing ROI, the problem becomes how to concretely measure the ROI of marketing efforts like brand awareness content or ads (what some people call top-of-the-funnel, or TOFU)

People's experiences with companies are not linear. 

When it comes to online content, the traditional marketing funnel is also too simplistic. The real buyer’s journey is complex and winding. 

While certain ads or content may bring value down the line, there’s no way to “prove” that it's driving revenue. 

What can we do, you ask? 

Well, we can look at qualitative metrics to give us an idea of how our campaigns are performing in terms of brand awareness. 

These include: 

  • Time on page
  • Bounce rate
  • Heatmaps
  • Comments on social media

Unlike quantitative metrics, these qualitative metrics must be subjectively interpreted. 

Lifetime Value

Another factor to consider when measuring marketing ROI is Customer Lifetime Value (LTV). 

It’s one way marketers can show the value of brand awareness and other long-term marketing efforts.

The LTV of a customer is how much a business predicts it will earn from the average customer. It’s a way to quantify customer relationships, and it’s a key yet sometimes overlooked aspect of ROI. 

To calculate LTV, you will first need to figure out customer value. To do this, multiply the average amount a customer spends by the average number of purchases a customer makes

Now you’ll multiply this figure by the average customer lifespan (average number of years a customer stays with you) to get the Customer Lifetime Value.

Customer Lifetime Value = customer value x average customer lifespan

saas marketing roi formula

Customer LTV can be improved by many factors, but a key aspect is customer relationship-building. Marketing can greatly contribute to the customer’s relationship with a brand through efforts like: 

  • Creating memorable blog or social media content
  • Personalized outreach
  • Responding to social media comments 

So, these types of marketing investments increase customer LTV by improving customer relationships and expediting their decision journeys—ultimately improving ROI. 

When it comes to calculating marketing ROI, LTV is a key factor: some brands build reports that overlook LTV. 

It gives them an incomplete picture of reality: one where marketing only accounts for revenue brought in that year.

Imagine your product sells for €150,000 a year. If you measure quarterly ROI and you sign clients from one of your campaigns, you need to factor in the whole LTV - not just what is paid in the quarter.

SaaS Marketing ROI: Measuring Different Channels

So far we’ve talked about marketing ROI at a high-level—mostly company wide.

We were trying to answer questions like, “Is my marketing budget bringing anything in?”

But most marketing teams, if not all, also need to report on the ROI of specific campaigns.

So let’s take a look at the metrics for different marketing channels and some ways to improve ROI. 

Email marketing

Email is a big part of many companies' marketing strategy, and the good news is that it is fairly straightforward to measure. 

📏 How to measure

Email attribution will help you understand how email campaigns contribute to revenue goals. There are many different types of tools and metrics for email attribution:

  • Email marketing platforms like MailChimp, Constant Contact, or AWeber: These platforms can provide basic metrics like open rate, click-through rate, unsubscribe rate, or email list growth rate.
  • Web analytics tools like Google Analytics, Adobe Analytics, or Mixpanel: These tools track traffic, behavior, and conversions on your website. You can also use them to set up specific goals, funnels, and attribution models.
  • CRM tools like Salesforce, HubSpot, and Zoho: CRMs can segment your email list, personalize messages, and monitor sales and revenue.
  • Tracking pixels: These are tiny images embedded in emails that send data to an analytics tool. Tracking pixels can tell you things like if a user opened an email, when they opened it, on what device, and their physical location.

🚀 How to improve ROI

Once you understand the right metrics and tools for emailing, you’ll be able to improve the ROI of future campaigns. 

First, try split testing. This allows you to experiment with changing different elements of your email like the subject line or the CTA in order to see which performs better. 

You should also consider personalizing your emails. By segmenting your customer list into different groups, you’ll be able to send messages that target each group’s unique interests and pain points. 

Another way to improve ROI of email campaigns is by setting up email automation which sends emails based on certain triggers or conditions. You can use an email marketing platform to set this up. 

Finally, don’t forget to optimize emails for smartphones since people nowadays are opening up emails on their phones. 

improve saas marketing ROI

Meta ads (Facebook, Instagram)

Meta ads aren’t usually part of a B2B SaaS marketing strategy, but for low-ticket products, they can be useful in reaching a broad audience. 

When it comes to Meta ads, changes in cookie policy over the past few years has resulted in major complications in measuring ROI.

First, Apple started requiring users to opt-in for advertising with the iOS14 update. Now Google has begun phasing out third-party cookies. 

A cookieless world means marketers will have to find new solutions for measuring Meta ad ROI. 

📏 How to measure

There are a number of tools that can be used to measure the ROI of Meta ads despite the changing digital landscape.

  • Google Analytics, while it can no longer rely on third-party cookies, can provide insight into website activity and conversions.
  • Meta Business Suite offers a range of analytical tools to track ad performance, audience insights, and engagement.
  • Incrementality testing platforms can be used to measure the direct impact of Meta ads on conversions. 

Beyond engagement metrics such as likes, comments, and shares, it's important to look at metrics like click-through rate, conversion rate, and cost per conversion when measuring ROI. 

🚀 How to improve ROI

Users are constantly bombarded with ads on Facebook and Instagram, so it’s essential to stand out from the crowd with creative visuals and ad copy. Strong calls to action will help increase click through rates and conversions. 

Lastly, make sure your website has a great landing page. You can have the best meta ads, but you’ll miss out on conversions if users click through to an unappealing webpage. 

Social media marketing

Social media brings a lot of value to businesses beyond revenue. Besides conversions, social media can also build a loyal audience, grow brand awareness, or enhance customer experience. 

📏 How to measure

Analytics tools like Hootsuite or Hubspot will allow you to monitor a wide variety of metrics like: 

  • Reach
  • Engagement
  • Signups
  • Conversions
  • Site visits
  • Newsletter subscriptions 

You’ll want to focus on the metrics that align with the goals that make sense for your business. 

🚀 How to improve ROI

Social media is constantly changing. Between algorithms and your audience’s preferences, it can be hard to keep up. A/B testing is a great way to refine your strategy and ultimately improve ROI. 

You can run tests by changing elements of your posts like visual assets, copy, calls to action, link placement, or hashtags. This will help you figure out which types of posts perform best and allow you to adapt your strategy. 

Social listening is another technique to improve social media ROI. This practice involves monitoring social media for mentions of your brand, competitors, and overall conversations related to your industry. You will be able to better connect with your customers by adding to the conversation and addressing their pain points.

Finally, getting people to post on LinkedIn or Twitter will improve brand awareness and drive social proof. 

Content marketing 

Content marketing is another channel that’s about brand awareness, so measuring ROI isn’t necessarily straightforward. Content can build authority and loyalty that will lead to results over time.

No one converts after reading one piece of content. It happens after being exposed to an array of content over the long-term. 

📏How to measure

Google Analytics can be used to view traffic and attribution reports per channel. But content marketing attribution is complicated. 

For example, traffic reports will show the customer’s last interaction and doesn’t take into account the complexity of the customer’s journey. 

The model comparison tool in Google Analytics is the best way to measure content attribution as it assigns credit to each measurable interaction in the customer’s path to conversion. 

🚀 How to improve ROI

First of all, make sure the content you publish is memorable, original, and focused on solving buyers’ real-world problems. Easier said than done, right? 

One way to achieve this is by conducting user research to help you understand the problems your product solves for customers. This way, you’ll be able to adapt your content strategy and better connect with the right audience. 

Another way to improve ROI is by auditing and optimizing your existing content. Instead of pumping resources into new content production, refreshing and optimizing existing articles can give you a greater return than solely creating new content. 

saas marketing roi content

SEO

SEO is one of the most effective ways to gain brand awareness. Particularly for SaaS startups, SEO is an important investment that will create value in the long-term.  

📏How to measure

When it comes to measuring ROI of your SEO efforts, don’t expect positive results immediately. Keep in mind that with SEO, you’re playing the long game. 

To measure ROI, you can use Google Search Console or Google Analytics to track metrics like: 

  • Clicks
  • Impressions
  • Rankings
  • Organic sessions

You can start tracking SEO metrics immediately, but realize that it will typically take around 6-12 months to see positive ROI. 

🚀 How to improve ROI

For SaaS companies, your keyword strategy can be key in improving ROI of your SEO efforts. Don’t only try to rank for competitive keywords. You can rank higher and gain more valuable traffic by targeting low-competition long-tail keywords.

Link-building for SaaS is another way to increase ROI as having a robust linking strategy will help your rankings. 

Lastly, focus on bottom-of-the-funnel content, especially when starting out, because customers at this stage will bring the most monetary value. 

Don’t Get Caught Up In Short-Term Thinking 

In today’s world, measuring marketing ROI is key for SaaS companies. 

Not only can you use the numbers to defend marketing investments, but you’ll also gain valuable insights into what is and isn’t working and adapt your strategy accordingly. 

But when it comes to measuring ROI, there’s a lot more to consider than simply plugging numbers into a formula. 

And it’s all too easy to be trapped by short-term thinking. 

Showing off high sales numbers is impressive, but that shouldn’t be your sole aspiration. 

Mastering the SaaS marketing game means looking at the whole picture. 

Some marketing results are way harder to quantify than sales, but their impact is huge. 

Consider brand visibility, reputation, and the cultivation of a loyal customer base. 

While harder to quantify, there’s no denying they are crucial to the success of your business in the long term. 

📚 Recommended Reading

👉 Decoding the SaaS Magic Number
👉 SaaS Churn: The Ultimate Guide
👉 How to Calculate SaaS Retention Rate

Alexis Herrington

I’m the new SEO hire at ScaleCrush! A former teacher, I love transforming complex topics into easy-to-understand content. I’m always busy learning all about marketing and love sharing my thoughts along the way.

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