Regardless of what your company manufacturers or which business customers you build things for, the company is in business to make money. Without a return on your investment, it can't stay afloat and continue to serve the customers you do.
But simply generating more revenue won't get the job done, especially with the rising costs of raw materials. You won't make that up in volume alone. You need to know how efficient your marketing efforts are, what a good ROI ratio for manufacturing is, and how to increase your marketing ROI through inbound marketing.
How to Calculate Your Manufacturing ROI Ratio
The ratio is acquired in two steps.
- Total revenues - initial investment = net income
- Net income / divided by the cost of that investment = ROI
If you invest 1000 and make 1500 in total, you have a net income of 500. That 500 divided by 1000 is 50%. Write that as a ratio, and you have 2:1. While the percentage form is more common, it can be helpful to look at it as an actual ratio because 2:1 means for every $1 you spend, you have a $2 net gain. Not too bad. But is it enough?
Why Manufacturing Is Different
Manufacturing can get a little tricky. You have a lot of upfront investments in equipment. Sometimes you have to buy raw materials well before you need them to get the best price or avoid shortages. You have to take care of your customers to keep those accounts.
On top of that, you have R&D. These things pay you back over time. But those first few years, you might be making no returns.
For this reason, it's important to look at ROI over a longer period of time. You certainly should have short-term KPIs you measure regularly. Those can tell you if you're heading in the right direction -- cutting customer acquisition costs (CAC), lengthening the customer life cycle (LTV), increasing revenues, etc.
Because here's the secret. You often have very little control over the cost of raw materials or when a major piece of equipment has to be replaced. But these metrics (CAC, LTV) you can control. And this is where the ROI is found in B2B manufacturing and what many companies are starting to find out.
What's a Good ROI in Manufacturing?
Given the impact that controlling acquisition costs and lifetime value have on your returns, it's clear we need to focus on marketing ROI above all to see an increase.
You'll measure marketing ROI (MROI) the same, except you're just looking at the costs of marketing compared to the revenues generated. And just as you need to measure it over a longer period, it's critical that you do the same for marketing.
The typical sales cycle can last 6 months, so you're unlikely to see it if you're looking for MROI within 30 days of launching a campaign.
Your marketing investment includes line items like:
- AdWords clicks
- Display ads
- Traditional advertising (TV, radio, print, mailers, etc.)
- Content creation costs
- Advertising agency fees
In manufacturing, the bare minimum decent marketing ROI ratio is 5:1. A good one will be something higher than this — 10:1 or 15:1. It can be much, much higher.
If you only have a 2:1 or even 4:1 ratio, overhead, labor, or COGS would eat that up fast. You're just breaking even -- and the company owner didn't go into business just to break even.
As a smart marketer, you know breaking even isn't sustainable. You need marketing strategies that increase manufacturing ROI significantly. You want to build a brand and experience that brings your ideal customers to you. Building a brand people appreciate and gravitate towards is why you went into marketing in the first place.
How Inbound Marketing Increases ROI
Inbound marketing is both sustainable and "snowballing". So it delivers some ROI now. But the ROI increases (snowballs) with time as long as you maintain it.
Inbound marketing turns your B2B manufacturing brand into a magnet online, identifying and drawing your most ideal B2B customer with helpful content and a personalized sales funnel. It generates high-quality leads and employs analytics and automation to nurture those leads with the right message at the right time.
When combined with lead-scoring automation, it can consistently deliver high-value sales qualified leads (SQL) directly to sales, improve marketing-sales alignment, shorten the sales cycle, increase LTV and lower CAC.
If you want to learn how to improve your ROI tracking and reporting, then start with an assessment. Relequint’s B2B Balanced KPI Scorecard will help you align your overall business goals with your strategy to increase your manufacturing ROI. Click here to learn more.