Calculating ROI For Digital Marketing Activities
Just as there are many different forms of marketing, there’s an equally diverse range of methods for calculating ROI on those initiatives. Depending on the size and scope of the specific campaign (or the wider time period you’re measuring), ROI calculation can require anything from simple arithmetic to juggling more complicated sets of equations.
With a full understanding of the different methods used to calculate ROI, your business or agency can earn new customers, build trust with your current client-base, and keep your revenue in the black.
Basic ROI Calculation
At the root of things, ROI is derived from a pretty simple equation:
ROI = [Revenue earned] – [Cost of investment]
For example, if you buy a piece of property for $100,000, spend $15,000 refurbishing and marketing it, and then sell it for $150,000, your total ROI for the venture is $35,000.
This kind of basic ROI equation is commonly known as a ‘financial value’ measurement, and it represents what you’re ultimately trying to get at with any kind of ROI calculation: The overall dollar value returned by an initiative. But modern marketing techniques involve dozens and dozens of interlocking initiatives and touchpoints, so your ROI calculation will almost never be this straightforward.
First, you’ll have to decide whether you’re looking to determine ROI for a specific campaign (a relatively narrow timeframe), or whether you’re trying to establish ROI for a wider period of time encompassing multiple campaigns and initiatives. Then, you’ll need to figure out how your current ROI figures compare to previous ROI measurements in order to gain a truly complete picture of how your agency is performing.
Ensure Your Data Collection Methods Are Clean
Before you collect data, be sure to identify the KPIs you want to track, assess, and get data on. These KPIs should be in alignment with your overall marketing strategy, goals, and objectives. It also helps to find and implement data collection software that fits your organization’s marketing budget and features the capabilities your business needs to measure its KPIs. This is important if both your marketing and sales teams are involved in the marketing efforts. Set up a uniform data collection system and set of procedures for your sales and marketing departments that’s centralized and accessible.
What Is A Good ROI For Digital Marketing?
Depending on what ROI you are measuring, it can be useful to look at what the industry benchmarks are for specific KPIs that are relevant for your business. If you advertise on Google Adwords, the average conversion rate is around 2.4 percent, with the top 25th percentile having a conversion rate of 5.3 percent and the top tenth percentile producing a conversion rate of 11.4 percent.
It is also important to note that your order value will be highest for direct and search traffic and email marketing. Social media usually yields the lowest order value. For email marketing conversion rates, tools like MailChimp publish reports that tell of appropriate ROI benchmarks according to company size, industry, unsubscribe rates, open rates, and click-through rates.
Besides looking at industry benchmarks, you can also look back on your company’s historical performance numbers and data. Pay attention to the ROI metrics you’ve used in the past and assess if they are still relevant. You can also look back on spikes and dips in your online marketing performance and try to diagnose what went well and what didn’t. Your business model will also help you determine which KPIs and ROI are good in assessing your marketing efforts. Below is a guide on what to consider for e-commerce, lead generation, and content businesses:
KPI metrics: Website traffic, amount of social media engagement, newsletter subscribers, and cart items
ROI metrics: Sales revenue, transaction volume, average conversion rate, revenue, transactions, days to transaction, sessions to transaction, average order price, and average sales price
Leading metrics: Amount of traffic to website, form conversions and completions, webinar and event attendance, and number of demos confirmed.
ROI metrics: Lead volume, cost per lead, lead conversion rate, lead quality, and close rate
Leading metrics: Traffic to website, click-through rates, average session duration, average pages per session, and community and social media engagement
ROI metrics: Subscriptions to email lists, online newsletters, downloads, and subscription length, and article shares
Calculating the ROI in digital marketing is dependent on factors including audience, company size, business goals and objectives, and industry. Sometimes ROI alone isn’t the best number to use to measure the success of your marketing efforts. Instead it may be helpful if you analyzed your KPIs and how they fit into the overall picture of improving digital marketing ROI.