A digital marketer is responsible for various tasks. They need to constantly brainstorm for new content, publication of new ads and also overview the marketing campaigns of influencers, stay up to date on social media, and many more.
They have to figure out how to make all of this into business. Not all these works will produce an equal number of leads, so it makes them wonder how to prioritize the work.
There comes the return of investment (ROI) into the picture. By calculating the ROI of the digital marketing campaign can explain what is working and what is not working.Â
This will allow marketers to find and execute the strategies that actually work and prove the value of work.
In this blog, we can discuss the details regarding Digital Marketing ROI and its importance. Also provide you with the details about how to calculate it effectively.
What is Digital Marketing ROI?
Return on investment is an important measure that is used to assess the profit of an investment related to its cost.Â
In digital marketing, it quantifies the success of campaigns by determining the revenue that has been generated for the invested amount. This measurement helps in the determination of future budget decisions.Â
ROI is a metric that helps in measuring how much money companies can expect to earn from digital marketing strategy when compared to how much has been invested.
A higher positive return on investment means a higher profit rate.
Important Metrics in Digital Marketing ROI
Some of the metrics that should be focused on when measuring the digital marketing return on investment are,
1.Conversion Rate
It is the percentage of visitors on a website who will take actions like filling out the form on the landing page or buying something.
This metric is preferred by expert digital marketers as it is a good indicator of how well the efforts of digital marketing have been going on by converting the users into buyers.
2.Cost Per Acquisition
Cost Per Acquisition (CPA)Â is the calculation of how much it costs to get a customer that includes expenses on advertisements and also the cost of goods and services.
It is significant as it helps in determining whether digital marketing is expensive compared to other channels like printing advertisements or television commercials.Â
Cost per acquisition = Total campaign spend/ Number of acquired customer
3.Cost Per Lead
This is the measurement and how much it costs to get a lead. This also includes the expenses used for advertisement.Â
This metric is good for investigation as digital marketing when compared to traditional marketing can be a good way to produce a vast number of leads at a lower cost.
Cost per lead = Marketing campaign total cost/ Number of lead generation
4.Return on Ad Spend
Return on Ad Spend (ROAS) measures how effective digital marketing campaigns are in producing revenue. It can be calculated by dividing the total amount of revenue generated from the ads by the amount that has been spent on those ads.
Return on ad spend = Revenue/Total ad spend
5.Customer Lifetime Value
It is the prediction value of the net profit that has been attributed by a customer in the future relationship with the company.
Customer lifetime value = Average purchase value * Purchase frequency * Customer life span
6.Unique Monthly Visitors
It is the indicator that shows how many new people have viewed your website in a month.
This is a simple metric that you can measure, as many digital marketing techniques aim to increase the traffic of the website from search engines.
7.Traffic Generated by Channel
This mainly involves analyzing the traffic that has been generated by various digital marketing sources.Â
A careful analysis can provide you with a clear picture of which channel or activity can provide the most traffic.
How to calculate Digital Marketing ROI?
The basic calculation of return on investment for digital Marketing is simple.
The Marketing ROI Calculation formula is,
ROI = (Revenue from digital campaign – Digital campaign cost) / Digital campaign cost.
The main goal when doing digital marketing is increased traffic and conversion but it should provide an increase in revenue in the long run.Â
Most companies measure the digital return on investment with the common formula,
ROI =Â (net profit / total online marketing cost) *100
For determination of net profit, you have to simply subtract your cost from the revenue and then divide the net profit by total cost. To make them into the percentage, multiply that number by 100. The formula for net profit calculation is,
ROI = ((Revenue – cost)/ costs)*100
For example, if you invested $10,000Â in digital marketing and earned $60000 then you are calculation will be like this,
(($60,000-$10,000)/$10,000)*100 = 500%
ROI can also be expressed as a ratio. For that divide the net profit by the cost and the number is the ratio compared to 1. For the above example, you can divide $50,000 by $10,000 to get 5. Then, the ROI ratio is 5:1 or 5$ for every 1$ investment.
The Internet marketing ROI calculation formula is,
ROI = ((Lead numbers*lead to customer rate -average value of order) – marketing cost)/marketing costÂ
For example for 4000 leads and 40% have become customers, average spending is $200. Also for marketing $10000 has been spent.
= ((4000*40%*100)-10000)/10000
= (160000-10000)/10000
= 150000-10000
=15
To get the number in percentage multiply the number 100. The ROI percentage is 1500%.
How to improve Digital Marketing ROI?
Four common methods can be used to increase the ROI in digital marketing.
1.Set Goals and Stay Focused
- Set the achievable and relevant course before starting any campaigns in digital marketing.
- This can be associated with return on investment or any other digital marketing KPIs, they must align with your budget constraints and scopes.
- As the campaign progresses the report on these metrics must be observed for any gaps or if all the parts of the campaign are performing well.
- This can provide an opportunity for refining campaigns or the creation of entirely new campaigns that can provide better results from the audience.
2.Focus on the Channels that Work Best
- Higher ROIÂ can be achieved by focusing on fewer channels.
- Identify the channels like SEO, email marketing, social media marketing or PPC that have the most effect on the brand initially.
- Then consider the real occasion of the marketing budget in a way that can maximize the returns.
3.Test and Optimize
- The only way to understand how marketing campaigns work is to test them.
- Use some variable tests for experimentation of new copies, visuals, links, and others for narrowing down the audience response.Â
- This will not only help in improving the current campaign but also give a better understanding of the starting point when the new campaigns are being launched.
4.Multi -Touch Attribution
- One of the biggest challenges that marketers face is attribution when it comes to measuring the success of digital marketing.
- Most of the results in conversions are obtained from multiple prospect interactions with the brand.
- This is the reason for marketers to turn to multi-touch attribution.
- Understanding different aspects of a campaign can help you to see which part of the customer journey is more effective and will give you a chance to fix the parts that can cause a loss of customers.
- The multi-touch attribute can benefit the campaigns by increasing the conversion rate which leads to an increase in return on investment rates.
Conclusion
Digital Marketing ROI is a critical metric that helps marketers assess the effectiveness of campaigns carried out by them by comparing the revenue generator to the cost that has been invested.
Understanding and calculating return on investment can help digital marketing agency to prioritize the efforts that can produce the best results, optimize the allocation of budget, and also justify the expenditures happening during the marketing.
Focusing mainly on the key performance indicators can improve the overall performance of the campaigns that can lead to sustainable growth and success in the competitive digital marketing industry.
Frequently Asked Questions (FAQs)
Email marketing can generate leads and sales at a lower cost, positively influencing ROI.
A sales funnel illustrates the customer journey, helping marketers optimize strategies for better ROI.
AOV measures the average amount spent by customers per transaction and helps assess revenue generation.
