ROI In Digital Marketing
Investopedia defines the concept of return on investment (ROI) as “a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments.” ROI is often a key indicator to determine if a certain venture is seeing a good profit and if the cost allocated towards it is justified. It also functions as a tool used to adjust and optimise budget, increasing the allocation to plans that yield more returns.
In digital marketing, ROI is also one of the factors analysed when assessing several marketing tactics. And with the existence of data visualisation tools and marketing analytics platforms, it’s now much easier to attribute the effectiveness of digital marketing plans to the profit earned. Still, a beginner may find themselves overwhelmed by ROI analysis, especially with all the digital marketing measurements and metrics to consider. Here are our tips on how you can measure your ROIs and use them for your insights and analyses.
Learn the right formula and the different digital marketing metrics for ROI
ROI is often computed differently depending on the situation, but Investopedia presents two simple formulas:
Net return on investment / cost of investment x 100
Or
Final value of investment – initial value / cost of investment x 100
Hubspot offers an alternative formula that takes into consideration the difference between leads and converted leads:
[((Leads x rate of leads converted x price of item) – ad budget) / ad budget] x 100
There are other formulas for ROI, but these are the simplest ones to understand. The latter formula is also good for digital marketing ROI measurement, as the leads can signify those who clicked or visited your website or page specifically through your digital efforts. This figure is then compared to the leads that did convert into sales, resulting in a more accurate figure for your ROI.
Besides this general formula, there are also several ROI metrics you can follow. Some of them are the following:
- Cost per lead
- Cost per acquisition
- Customer lifetime value
- Click-through rate
- Engagement rate
- …and more.
Depending on what your goals are, you can use any of these ROI metrics accordingly in order to assess the success of your digital marketing campaign. Do note that a 5:1 ratio between the profit earned and the investment is considered successful. You may be earning a lot, but if it’s only a bit higher or even lower than the cost it takes to produce and market your brand, you may need to change marketing tactics.
Know when to measure ROI and when to measure other KPIs
In relation to ROI and the metrics above, a good digital marketer would know when to employ digital marketing ROI measurement and when to use other KPIs.
For example, Business.com cites that the low funnel of the conversion funnel is the best stage to measure your campaign’s ROI. Because the low funnel is typically where customers are ready to buy a product after doing enough research, ROI is at its most important at that stage as this is the part where they can potentially convert into a lead and a sale.
On the other hand, customers in the high funnel (general interest but nothing too in-depth) and mid funnel (brand recognition and comparison to other brands) are understandably just starting out. To assess ROI at that stage would be too soon, so it’s best to check out impressions, clicks, engagements, and similar metrics as your digital marketing KPIs instead.
Additionally, not all marketing tactics are best measured by checking out the ROI immediately. SEO and content marketing are better evaluated in the long-term, for example. To measure their ROI so soon would leave you disappointed at the figures, as it is a long process with a payoff coming at the end of the campaign.
Data visualisation tools and marketing platforms
Lastly, the nature of digital marketing means that all the ROI measurement is done online. As a result, there are several marketing platforms and data visualisation tools that you can use to your advantage in order to correctly evaluate your campaigns.
For starters, a Google Analytics account is great for monitoring the traffic, activity, and transactions that go on in your website. Pixels and UTM codes can also be added to your website to track the user journey, whether it’s the customers clicking your campaign ad that leads to your website or accessing it through their phones. And then there’s also other social marketing platforms that provide better insight to help you compute your ROIs more than your typical social media channels. Customer relationship management tools also exist to help keep track of your leads.
All in all, using these marketing platforms and tools to help visualise and analyse data is a benefit if you want an easier time assessing your campaigns and measuring your ROI.
Knowledge of all these ROI measurement tips, combined with expert assistance from a digital marketing agency, can help you monitor and examine your digital marketing campaigns better. Collaborate with us at No Standing to get a firsthand look on how ROI in digital marketing works. Contact us and let’s get started on your digital marketing projects!
