Evaluating your return on investment (ROI) is a critical component of any marketing strategy. However, actually measuring return on investment can be challenging for businesses and marketing professionals. In an industry dominated by buzzwords like “viral content” and “engagement,” it can be tricky to determine which metrics most closely align with your organization’s bottom line.
With the amount of data currently available to marketing professionals, digital marketing ROI can be calculated in numerous ways. Depending on your organization’s goals and strategy you may need highly-detailed measurements, or perhaps something quick and simple. To help get you started setting digital marketing ROI metrics, you’ll find several methods to measure your digital marketing ROI, as well as insights into evaluating and improving your digital marketing performance.
Quick & Simple Methods
The simplest way to calculate your digital marketing ROI is to weigh it against your business’ overall growth. A simple ROI equation could look something like this:
(Sales Growth – Average Organic Sales Growth – Digital Marketing Costs) / Digital Marketing Costs = ROI (%)
What does this look like in action? Let’s say your business saw a $5000 increase in sales last month. Looking at your historical sales data, you note that your organization averages a healthy 2% growth ($100) every month. Last month, however, your company decided to invest an additional $1000 in digital marketing. The calculation would go as follows:
($5000 – $100 – $1000) / $1000 = 390%
Looks like a pretty good month for your business, and money well spent on digital marketing!
While calculating ROI this way is fast and easy, it lacks the scope and nuance to give a clear picture of how your digital marketing mix affects your business. While quick and simple methods are good at providing a high-level overview of your performance, they fail to show the details necessary to evaluate individual components of your digital marketing mix. More detailed insights and further calculations are essential to fully understand the value digital marketing can bring to your business, as well as to consistently improve your business’ performance.
Cost per Lead & Cost per Acquisition
Evaluating digital marketing ROI in terms of cost per (potential) customer can help marketing professionals understand how their digital marketing affects their organization, and which practices are most effective in achieving consistent performance. Two common calculations used for this purpose are cost per lead and cost per acquisition (or customer acquisition cost), noted below:
Cost per Lead (CPL) = Digital Marketing Spend / Total Attributed Leads
Cost per Acquisition (CPA/CAC) = Digital Marketing Spend / Total Attributed Sales
Calculating how much it costs to acquire a new lead or new customer is critical in evaluating your return on investment. Having a number attached to every person your organization interacts with through digital marketing will allow you to determine the precise value of your digital marketing efforts.
Moreover, marketing professionals can use these equations to evaluate individual components of your digital marketing mix with greater precision. If your business is running multiple digital marketing programs, you can use the CPL equation to determine the individual cost-effectiveness of each tactic at generating leads. Further, you could use the CPA equation to evaluate how much it costs to convert those leads into customers.
Quick Tip: It can be helpful to use analytics tools when calculating CPL and CPA. Google Analytics offers a host of tools and resources to measure your marketing program metrics.
Another important consideration is your lead-to-sale conversion rate. This metric is the percentage of leads that become sales, and can help further determine the effectiveness of your digital marketing strategies. (Sometimes also referred to as a Close Rate)
For example, suppose your business was running both a search marketing program and a social media program simultaneously. While the social media program generated 20 leads for a healthy CPL, only 2 of those leads ultimately turned into sales (a less-than-impressive CPA). In contrast, while the search marketing program only produced four leads (a seemingly dismal CPL), three of those ultimately converted to sales for a stellar CPA and a 75% lead-to-sale conversion rate. In this case, the search marketing program is significantly more valuable to your business, as the leads it generates are more likely to become customers.
Other Metrics to Consider
While the above measures can be vital in demonstrating the return on investment, they are not the only way marketing professionals can show the value of their work. The more metrics you can track, the better you can evaluate your digital marketing program’s performance. Comprehensive data and insights will empower you to not only demonstrate your ROI, but allow you to tweak your digital marketing mix for consistent performance over time.
Customer Lifetime Value
One crucial metric is your customers’ average lifetime value (LTV). Although initial customer acquisition costs are important, tracking LTV will allow you to get a better understanding of your customers’ overall value, especially when considered along with other measurements.
Suppose it costs you $50 in digital marketing to acquire a new customer, who makes an initial purchase of $60. While the initial ROI is only barely positive, a customer who makes that same $60 purchase every month for a year will make that initial $50 investment look much more worthwhile over time.
The easiest way to calculate average LTV is to take your total revenue from the last few years and divide it by the number of customers you had during this period. Looking at customer data from their entire lifetime will allow you to contextualize your digital marketing investment better and give you a more accurate picture of your ROI.
Quick Tip: Choosing how many years to average will also depend on your average customer lifetime. If your customers make single purchases, you may want to choose a shorter period (one year or less). If they make multiple repeat purchases, find a period of time that is best representative of the lifetime with your average customer. You may also want to split this up by product, category or service.
Depending on your organization’s digital marketing mix, you may consider evaluating other “soft” metrics for your digital marketing tactics. Here’s a list of metrics you can use to measure digital marketing ROI based on tactic:
- Blogs: Search engine ranking, traffic, clicks, time spent on page, unique visitors, returning visitors, actions taken, conversions.
- Landing Pages: Search engine ranking, traffic, total page views, time spent on page, actions taken, conversions.
- Social Media: Engagement, clicks, click-through rates, conversion, shares, leads acquired, new fans/followers.
While these metrics don’t neatly tie back into a dollar amount, they are highly-detailed performance indicators that provide marketers with additional insight. Again, the more data you can collect and analyze, the more complete of an understanding you’ll have of your digital marketing, allowing you to make better decisions to achieve consistent performance and ROI over time.
The only way to achieve consistent digital marketing performance over time is through data-driven insight. Evaluating digital marketing ROI is one of the most accurate ways to measure your organization’s current success and tie your efforts into your overall bottom line.
The metrics by which you calculate ROI will depend on your business’ goals. Specific, measurable goals will dictate which tactics you use and which metrics matter most, guiding your overall approach to evaluating your digital marketing mix. No matter which tactics you employ or how you measure ROI, the key to consistency is continual analysis and adjustment.
Measuring digital marketing ROI is one thing; improving it over time is a challenge unto itself. Especially if data analysis isn’t your strong suit, the sheer volume of data available to marketers can be overwhelming. With the complexity of modern digital marketing, it can be tough to know where to begin adjusting your strategy.
For businesses and marketing professionals looking to show digital marketing ROI over time, Atrium Digital offers a unique approach to help you achieve consistent marketing performance. Our data-driven Marketing Systems Engineering programs use real-world experience and insights to engineer systems, build platforms, and optimize routines to help you achieve consistent marketing performance over time.
Contact us today to learn more about how Marketing Systems Engineering can maximize your digital marketing ROI.
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