Digital Discussions: How Is ROI Calculated in Digital Marketing?

ROI Calculated in Digital Marketing
Companies collect so much data, it’s easy to get overwhelmed. That explains why 43% of data goes unused by enterprise organizations. Marketers face a similar challenge. They have a ton of access to data, right down to the click, but many still can’t ROI calculated in digital marketing.

This is central to creating an effective digital marketing strategy, and you need to know the different methods to calculate ROI.

Fortunately, there are a number of creative ways to determine if your marketing campaigns are working or not.

Read on to learn how to calculate the ROI of your next digital marketing campaign.

1. Define Most Important Metrics

Everyone can agree that ROI means return on investment. Not everyone agrees on how to measure it.

One group of stakeholders might say that you should measure ROI based on the number of impressions or social media followers your account has.

That shows a potential increase in brand awareness, but there isn’t a connection to sales revenue.

You can measure success based on the simple ROI calculation. That’s where you take your sales revenue increase, subtract the money spent on marketing, and divide that number by the marketing spend.

For instance, if your sales revenue increased by $15,000 and you spend $5,000 on marketing, your ROI is 200%.

Marketing firms like Bear Fox Marketing use a similar method. There’s a direct connection between marketing spend and sales, so you know that your campaigns are working.

Get all of the stakeholders together and decide what the most important metrics are to measure marketing ROI.

2. Use First and Last Touch Attribution

One way to cleanly calculate ROI is to use first and last touch attribution also called single-touch attribution. You give the value of the entire deal to the first or last point of contact before the sale.

In digital marketing, the first touch might be a social media campaign to promote a webinar. If a person watched the webinar and talked to a sales rep before buying, the social media campaign would get all of the ROI credit for the sale.

The last touch attribution credits the sales rep for the sale because they were the last point of contact prior to the sale.

These methods of calculating ROI are easy to measure and implement. You get good data on the early stages of the buyer’s journey.

However, there is too much emphasis on lead generation. Your employees are incentivized to focus on getting leads, and the quality of leads could dip significantly.

3. Multi-Touch Attribution

This method of calculating ROI tries to solve the issues with single-touch attribution. It assigns value to several points of the buyer’s journey.

For instance, a buyer clicks on a PPC ad. They visit your website, and they see a remarketing ad, click on it and return to your site a few days later. This time, they sign up to your email list.

You send out an email a few weeks later and they finally make a purchase from your site. In a last-touch attribution, your email would get credit for the entire sale.

There are a few ways to measure multi-touch attribution. In Google Analytics, you can use position-based attribution.

In this model, 40% of the value goes to the PPC ad and email, since they were the first and last touches. The other touchpoints in the middle get 20% of the credit.

4. Cost Per Acquisition

This metric tells you how much it actually costs to get a customer, not just a lead. This is a very simple calculation.

Take your total marketing spend and divide it by the number of new customers. If you spent $1,000 and got 35 customers, your cost per acquisition is about $28.

5. Customer Lifetime Value

Methods of tracking ROI assume that a customer only makes a single purchase. What if your business is a gym or SaaS business, where people sign up for a monthly membership?

The lifetime customer value takes that into account. Here’s how to calculate it: take the value of your product or service and multiply that by the average number of purchases.

For instance, you have a product that costs 20 and the average customer stays for 36 months. The customer lifetime value is $720.

This gives insight into how much you can spend on marketing and into the overall health of your business. If you have a low lifetime value, you need to spend more on digital marketing to attract new customers.

One way to counter that is to upsell products and services to increase the value of a customer.

6. Acknowledge Your Assumptions

You have to make assumptions when you interpret marketing data. That’s partially why so many get stuck trying to measure ROI.

It’s difficult to connect the result directly to the attribute. Let’s say that you have an SEO campaign that stretches across the various stages of the buyer’s journey.

You’re finding that you have the most success in generating conversions from keyword searches in the early stages of the buying cycle. This is the point where people are looking for information.

You also see that there’s a significant increase in sales. The assumption is that the SEO campaign is responsible for sales, but the data doesn’t support that.

It’s up to your team to figure out where that increase in sales is coming from, or at least acknowledge that you’re making an assumption.

Measure Digital Marketing Success

As a marketer, you need to know how to measure ROI in order to keep your job. People depend on you to drive revenue and results.

You have to prove value over and over again. This article gave you a number of ways to measure ROI. You can use one or all of them.

Be sure that everyone agrees on how to measure ROI and know what your assumptions are when you interpret the results.

For more tips to get the most out of your digital marketing efforts, visit the Business section of this site.