What is Marketing Golden Ratio?

I had someone interview me this week and they asked how I calculated return on my marketing investments. I explained my version of the “Golden Ratio” which they liked but their follow-up question was – Is there a write-up somewhere where I can go and read more about it? I said, there isn’t and I have learned this from experience. But, then I thought it might help other CMOs and marketers to get the best return out of their investments specially int his tough economy. Hope this helps.

The golden ratio, also known as the divine proportion, has been a topic of fascination for mathematicians, artists, and scientists for centuries. It is a mathematical constant that has been observed in natural phenomena such as the spiral patterns in seashells and the branching patterns of trees. However, it is not just a phenomenon that is confined to nature, but it also has practical applications in the world of marketing. In this article, we will explore how the golden ratio can be used to track marketing investments and optimize ROI.

What is the Golden Ratio?

The golden ratio is a mathematical constant that is approximately equal to 1.6180339887. It is derived from the Fibonacci sequence, which is a sequence of numbers in which each number is the sum of the two preceding numbers. The ratio of any two successive numbers in the Fibonacci sequence approaches the golden ratio as the sequence goes to infinity.

Using the Golden Ratio to Track Marketing Investments

In today's competitive marketplace, it's more important than ever for businesses to make the most of their marketing investments. But with so many different channels and strategies to choose from, it can be tough to know where to start. That's where the Golden Ratio for Marketing Investments comes in.

The Golden Ratio is a simple but effective framework that can help you maximize your marketing ROI. It's based on the idea that you should allocate your marketing budget in a way that produces the most results. To calculate your Golden Ratio, simply divide your total marketing sourced pipe by the spend on that campaign. Let us assume, you spend $20,000 on a campaign and it sourced a total pipe of $100,000. Your Golden Ratio is $100,000/$20,000 = 5. Now if you CRO says, Mr. CMO, I will close 1 in 5 deals you bring me, it is a wash as you spent $20,000 to bring in $20,000 (actually you have spend more in things other than just marketing). Golden Ratio of 7 in this case would be good. A golden ratio of 10 will be excellent. I generally try to keep my average Golden Ratio north of 15. This helps to keep a healthy balance of new experiments when some of your top performing campaigns are producing a Golden Ratio of 30-40.  

Of course, your Golden Ratio will vary depending on your business, industry, and target market. But the Golden Ratio is a great starting point for any business that wants to get more out of its marketing budget.

Here are a few tips for using the Golden Ratio to improve your marketing ROI:

1. Track your results. The first step to using the Golden Ratio is to track your results. This means tracking the number of visits, leads, MQLs, SQLs and opportunities you generate from your marketing campaigns.
2. Experiment with different channels. Once you have a baseline of data, you can start experimenting with different marketing channels to see what works best for your business.
3. Optimize your campaigns. Once you've found a few channels that are working well, you can start optimizing your campaigns to get even better results. This might involve testing different ad copy, images, and landing pages.
4. Reassess your Golden Ratio regularly. Your Golden Ratio will change over time as your business grows and your marketing strategy evolves. Be sure to reassess your Golden Ratio regularly to make sure you're still getting the most out of your marketing budget.

The Golden Ratio is a simple but effective framework that can help you maximize your marketing ROI. By tracking your results, experimenting with different channels, and optimizing your campaigns, you can use the Golden Ratio to get more out of your marketing budget. Whether it is analyzing the relationship between marketing spend and revenue or CAC and CLV, the golden ratio can provide valuable insights into how companies can allocate their resources more effectively to achieve their marketing objectives.

Hope this helps. Happy to hear your thoughts on how you track your marketing investments.