Digital Marketing Return on Investment: Measuring Success
Digital marketing requires as sizeable investment—how to know if your efforts are paying off? Here is how to measure digital marketing return on investment.
Measuring your digital marketing return on investment (ROI) gives you insight into real results—insight you can act on. You can track, measure, and learn what works best for you and allocate your spending accordingly. Your goal is to bring in more revenue than you spend on marketing—always increasing the profit margin. Marketing is typically the biggest cost in digital businesses, but you should track all costs. Take a look at digital marketing ROI as well as total business return on investment.
Digital Marketing Return on Investment--ROI Depends on Goals
Calculating your digital marketing ROI begins with understanding your goals. Conversion—when someone takes the action you desire—is one of the most common, but by no means is the only goal. Here are some of the most common digital marketing campaign goals:
Measures how many visitors actually make a purchase or other defined economic transaction. This number measures the overall effectiveness of your appeal.
Conversion by Channel:
You can track how much traffic is coming from different sources. Are people arriving at your site because of search engine optimization? Are they clicking on a social media post? Did email send them your way. Knowing source of traffic is just the beginning; you need to know which sources of traffic are sending people who take the action you desire. Do people who come from Facebook buy more? Do people who are funneled from an email more likely to download a white paper? You will want to invest more on channels that bring you more conversions.
Conversion by Device:
Do people buy more on mobile or desktop? Perhaps your mobile site does not work well or perhaps your audience spends more time at their desks.
Cost per Lead:
This number is the result of dividing all you have spent on digital marketing with a particular product, message, channel, or device by the number of leads generated. You can look at this number in granular form, looking at cost per lead per message, per channel, per device, etc. If your cost per lead is higher than the revenue you generate from the lead, you have a problem. Of course, that might depend on how many leads you close.
Lead Close Rate:
Cost per lead is only part of the story. If your costs to acquire a lead are low, but few of the leads close, your profit suffers. You might find that each lead is expensive, but they tend to close at a high rate, which can be a very positive thing. Take a look at close rate by different elements of your campaign so that you can adjust your message and offer or use different channels and methods.
Cost per Acquisition:
This number gives you insight into how much it costs to acquire a new customer. You calculate it by dividing your digital marketing costs by the number of customers who buy.
Average Order Value:
How much customers buy when they do buy impacts your digital marketing return on investment. Look at the average dollar amount spent by each customer when they order. Your goal is a higher ring. A larger sale at the same cost translates to higher revenue and higher profit.
Customer Lifetime Value:
Consider how much the average customer will spend over their lives for products such as yours. Perhaps the cost per acquisition is high, but the amount they will spend year after year justifies it. You’ll want to figure your share of that spending and the number of years they will stay loyal. If you get 100% of their spend all their lives, you’ve won a profitably loyal customer.
Calculate the long-term profit for a customer by dividing lifetime value by the cost of acquisition. You can also calculate the breakeven point. Do you earn a profit on the first sale or does it take a few repeat purchases to pay the cost of acquisition?
Digital Marketing ROI by Tactic
Sophisticated marketers go beyond general metrics to measure digital marketing ROI by tactic. That way, you can figure out what digital marketing tactics work best and focus your resources on the most efficient activities. Below is a list of some of the most common and useful tactical digital marketing ROI metrics.
Measure Your Digital Marketing ROI over Time
A one-time snap shot tells you how you are doing today, but don’t give you enough information to determine if you are truly successful. You need to look what you are doing over time. Is your trend improving? Or are your efforts yielding declining returns?
You want to look at trends—is this month better than last? What is the direction of growth from day to day, week to week, month to month?
Linear trends are important, but can be distorted by seasonal impacts. That is why it is important to compare current results with the same period a year ago.
Measure Your Digital Marketing Return on Investment to Meet and Exceed Your Goals
Never had measuring marketing results been easier. With detailed tracking and a little bit of calculation, you now have rich metrics that let you first measure your digital marketing return on investment and then react to constantly improve and refine, generating better and better results as you go. No matter what your goals, an always increasing the profit margin is everyone’s ultimate objective.