How to Measure ROI in Digital Marketing
Measuring ROI (return on investment) is important to any marketing campaign’s success. You can identify what’s working or not and what you may modify to boost your performance by measuring the ROI. I’ll go through how to manage, evaluate, analyze, and optimize your online marketing ROI in order to implement more effective campaigns and expand your business inside this post.
What is digital marketing ROI?
The ROI of your digital marketing is an assessment of the profits and losses of your marketing campaign that you measure using the following equations:
“[Net profit / total digital advertising cost] X 100.”
Analyzing your digital marketing ROI allows you to assess the performance of your campaigns.
How to calculate digital marketing ROI?
The following formula is used by most businesses to calculate their digital marketing ROI:
(Net profit / total digital marketing costs) X 100 = ROI
To calculate your net profit, just simply reduce your expenses from your income. That net profit is then divided by the total expense. Multiply the figure by 100 to convert it to a percentage. The formula looks just like this:
[ (Revenue – costs) / costs ] X 100 = ROI
For examples, if you spent $5000 on online marketing and generated $30,000, your estimates would be as follows:
[($30,000 – $5000) / $5000] X 100 = 500%
A ratio can be used instead of a percentage to describe your ROI. Divide your total income by your expense to get this number. This is your ratio in comparison to 1. So, in the case of the previous sentence, divide $25,000 by $5000 to obtain 5. Your return on investment (ROI) will be 5:1, meaning $5 for each $1 invested.
The formulae above are quite simple if your objective is to improve sales or income. If your objective is to raise brand awareness, you would like to think about things like brand image and recommendations. Because it’s tough to place a value on brand recognition, using those formulas is more complicated.
Why measure digital marketing ROI?
Analyzing your online marketing ROI shows you what works and what doesn’t. If you don’t track your ROI, you’ll never understand if your campaigns are successful. It can lead to disappointing outcomes and wasted marketing resources.
If you assess your online marketing ROI, you can improve your strategies accordingly. When PPC advertising beats emails, you may choose to concentrate more on PPC or strengthen your email efforts.
Calculating ROI also assists you to demonstrate the effectiveness of your digital marketing activities, which enables you to get extra funds.
Digital Marketing ROI Metrics to Track:
To measure digital advertising ROI, you need two key metrics: the expense and the achievement.
When assessing the ROI of your digital marketing activities, keep track of KPIs that directly connect to sales, profit, as well as other business goals. These KPIs include leads, conversions, and client retention.
Take a look at some relevant digital marketing ROI indicators.
1. Cost per Lead
When you’re gathering leads for a promotional campaign, you’ll need to figure out the cost per lead.
To calculate cost per lead, divide your entire marketing expenses by the number of leads generated by your promotion.
Your ROI is determined by your cost per lead vs the value of each lead.
2. Cost per acquisition
The cost per acquisition is the amount of money it takes you to make a transaction. Measuring your cost per acquisition will inform you how much money you need to generate from each purchase to break even.
Divide your overall marketing expenses by the number of sales you made to get this figure.
3. Average order value
Understanding your average order value will allow you to assess your ROI, just as you read in the previous section on how to determine digital marketing ROI.
You should also keep records of the current average order value so you can set targets to improve it. Even just a little increase in the average order value might result in a massive gain in profit.
4. Click-through rate
You should also assess your PPC advertisements, organic search queries, email hyperlinks, and other promotions’ CTRs (click-through rates).
Simply divide the number of clicks by the total number of impressions, and that is the number of persons that viewed your advertisement or an organic search result to get your CTR.
If your click-through rate is low, you will need to improve your strategy or ad copy, or layout. Greater CTRs are linked to higher ROI.
5. Customer lifetime value
To calculate your ROI, you have to know your average CLV (customer lifetime value), or how much a client is valuable to your business throughout their lifetime.
If you spent $100 on advertising to somebody, and they bought $50, you could consider that a poor ROI. However, if they spend $50 over ten years, that’d be a different scenario.
Considering CLV might also assist, you save marketing expenses. CLV lets you focus on the whole lifespan of your client connections rather than simply individual transactions, which saves companies money.
Calculating your average CLV helps you determine how much you can invest in each client while still meeting your ROI targets.
5-Strategies: How to Measure Digital Marketing ROI
With conventional marketing, you spend to reach a large audience, whether it’s TV users, magazine subscribers, or citizens of a specific postcode. It’s difficult to assess the performance of these methods since you can’t trace who responds to advertising.
Digital marketing, on the other side, enables you to utilize tools such as Google Analytics to track, measure, as well as optimize your ad campaign.
See how to assess the digital marketing ROI of these rising promotional strategies:
1. PPC advertising
Pay-per-click (PPC) is an advertisement technique that targets search engine users depending on their search terms.
With Google Adwords, you can study keywords, pick the best ones, and set your budget per click.
You could also link your Google Adwords account with Analytics to track what visitors do after clicking on your PPC ads and also how they assist you to achieve your goals.
Suppose you want to sell $200 goods and your CPC is $2.00. If 100 users click your PPC ad and 10 buy, here’s how to determine your ROI:
100 individuals x $2.00 each = $200 spend
10 individuals x $200 each = $2000 return
You may use the common calculation of (Return-Investment) to determine your digital marketing ROI.
So, in this situation, (2000-200)/200 = 9, indicating a 900% return on investment.
Of course, the quality of your PPC ads will have an impact on your marketing ROI. However, because you can evaluate your PPC ROI fast and simply, you may allocate funds to the ads that produce the best results while improving the ones which don’t.
With Google Analytics, you can simply assess the actual ROI of your SEO efforts.
Custom goals in Google Analytics show conversions. You may also use Google Analytics to determine the actual value of sales.
Consider the previous case. Let’s say your site makes 50 sales each month from organic visitors, each valued at $200, yet you hire a Seo expert for $1000 a month for his services.
1 month x $1000 = $1000 investment
50 sales x $200 = $10,000 return
In this situation, your digital marketing ROI is 900%.
Remember that B2B businesses may not have e-commerce sales to track. Even so, understanding the estimated value of each one of your leads allows you to simply measure ROI.
Google Analytics also allows you to track form submissions, quotation requests, as well as free trials. Then you can see how much earnings your SEO effort generates for your business.
3. Content marketing
Content is cheap to produce and can be updated often to match the demands of your niche.
It’s difficult to calculate content marketing ROI because most users won’t convert beyond one page. Applying attribution models might help you assess the impact.
However, if you’ve seen an increase in income and increased website traffic after executing a content marketing plan, your ROI is certainly good.
Keep in mind that content marketing is a lengthy plan and that your one-time investment may pay off for years. It takes years to evolve, and the finest effects generally come months and even years after publication.
4. Email marketing
You may also utilize Google Analytics to measure your email marketing’s ROI.
To do so, just pick “Email” as your medium in Google Analytics, and compare the value of your target completions to your monthly email marketing cost. To determine your return, apply the standard ROI formula.
Email marketing costs vary based on whether you employ a free email platform or engage writers to develop your email content.
With solutions like MyEmailFX, you can track clicks, open rates, and unsubscribes to increase your online marketing ROI.
5. Social media marketing
You could utilize Google Analytics to measure website traffic, on-site conversion, as well as sign-ups that come from social media efforts, just as you can with other online methods. Buffer, for example, may track social media activity (likes, shares, and followers).
Then you’ll need to figure out how much each new client is worth who comes to your website from social media and buys the product.
Let’s assume gaining a new FB follower costs $0.50, and every new social buyer is valued at $5.00. If you attract 10 new followers yet they all buy anything from your website, your return on investment will be 900%.
You could also track the performance of social media marketing campaigns using in-platform statistics on social media sites like Facebook. This will make it simple to figure out how much you are investing per impression or click and alter your spending accordingly to optimize your outcomes.