The broad field of digital marketing includes a variety of platforms and tactics aimed at enhancing a company’s reputation, raising brand awareness, and eventually converting leads into sales and client retention.

When it comes to their expenditures on digital marketing, many business owners are interested in knowing their return on investment (ROI). But sometimes it’s easier said than done, and sometimes it might not even matter. Everything you need to know about ROI in digital marketing initiatives is covered in this tutorial.

A company’s branding and marketing initiatives across all digital platforms—search engines, websites, email, social media, SMS text message marketing, and affiliate websites—combine to form digital marketing. A campaign for digital marketing usually uses a number of channels. In order to increase awareness and turn traffic into purchases, it can also incorporate paid and organic methods.

Campaigns for digital marketing sometimes have a lot of moving components, some of which are longer-term strategies by definition. Determining if your digital marketing effort is yielding a profit can therefore be difficult.

Regretfully, it’s rarely sufficient to simply enter some basic data into an online ROI calculator in order to get a complete picture of how successful your digital marketing activities are. Although it could be alluring to attempt to apply a straightforward ROI model to your digital marketing initiatives, the nature of some marketing strategies implies that your total marketing expenditure might not provide a noticeable return for some time.

Additionally, a digital marketing campaign employs a variety of platforms and strategies, making it difficult to pinpoint the net income linked to a particular digital marketing strategy.

Tracking the several channels that make up your total digital marketing strategies is the first step in figuring out ROI in digital marketing. While your initial investment is important, sometimes it’s better to endure a short-term loss in order to achieve long-term success. Depending on the specifics of your campaign, there are several methods you might accomplish this.

How to Measure Digital Marketing ROI

Use these steps to measure and improve digital marketing ROI in your business:

1. Set an acceptable ROI goal

Knowing what a quality ROI number is may depend on your company’s specific goals. Typically, digital marketers consider a 5:1 ratio to be a positive ROI, though this number can vary based on the industry and campaign. Many factors, such as your market, platforms, and content, can influence this number. You can use your own history and other industry benchmarks to choose your ideal ROI. The goal ROI may be different for each marketing campaign you implement. You may design some campaigns to create high conversion rates and execute others to build brand or product awareness.

Knowing the specific goals of each campaign can help you best measure your ROI. Setting goals in advance can help you understand what metrics factor into your ROI. Consider using the SMART method to create tangible, actionable goals. SMART stands for:

• Specific
• Measurable
• Achievable
• Relevant
• Timely

2. Choose your KPIs and tools

Key performance indicators, or KPIs, are measurable statistics or values that show how effectively you’re executing a business objective. KPIs can help set clear expectations for your campaigns and help you decide what metrics to track for your ROI. Choose between five and eight KPIs that align with your goals to get a broad view of the scope of your campaign. There are a variety of online or virtual programs that allow you to track your campaign data.

Compare your goals and KPIs to the information your program monitors to see if you can access all the necessary data to calculate your digital marketing ROI. Look for features to monitor, such as traffic, bounce rates, conversions, and page views, along with the kinds of questions those data points can answer. You may also consider if your program has the functionality to turn your data into reports and summaries.

3. Track conversion rates

Tracking conversion rates can be beneficial when the goal of your campaign is to get customers to complete a specific action after interacting with a digital marketing strategy. There are a few ways you can track conversion rates, including:

• Conversion rates by channel: Track what channels, such as social media profiles or email lists, have the highest conversion rates to decide where to invest your marketing budget.
• Conversion rates by device: Track where people are accessing your content, such as on mobile devices or computers, and on which device they’re completing the most conversions.

4. Calculate your cost per lead

Calculating your cost per lead, or cost per new customer, may be beneficial when your goal is to increase your customer base. This metric can tell you on average how much you’re paying out of your marketing budget to generate each lead. To calculate the cost per lead, use this formula:

Cost per lead = total spent / total leads

If the cost per lead is less than the amount of money you make when closing the lead, you’re getting a positive return on your investment.

5. Track your average order value

The average order value (AOV) metric shows you the typical dollar amount a customer spends on one order. This may be a beneficial metric if your goal is to track profit increases or even customer retention. Even small increases in AOV can lead to an increase in new revenue, which can positively impact your ROI. To calculate the AOV, use this formula:

AOV = total revenue / total number of orders

To increase your AOV, consider improving your user experience quality or finding new ways to showcase different sales opportunities.

6. Track your unique visitors and branded search lift

Unique monthly visitors are the number of people who have clicked on your website, app or link once in a month-long period. Analytics programs don’t monitor repeat clicks from a certain device or IP address for this statistic because they’re not unique. Unique visitors can tell you about your sources of traffic and what ones are the most popular.

Read Also: How do You Measure ROI for Offline Advertising?

Branded search lift is a similar metric that tracks how many people have typed your company or brand name into a search engine to access your information. This may be a beneficial statistic to track if one of your goals is increasing brand awareness. Over time, your branded search lift number may grow as people learn more about your company.

7. Determine your click-through rate

The click-through rate (CTR) shows how many people visit your site or app by clicking a link you’ve posted somewhere else, such as in an email campaign or a linked advertisement on another channel. This metric can show you how many people are clicking on your external content to reach your page. To calculate the CTR, use this formula:

CTR = (total number of clicks / total number of impressions) x 100

8. Check your average position

The position of your website within different search engine results pages (SERPs) can affect the traffic you receive on your website. Generally, the higher your ranking, the more traffic you can receive. Measuring your page rankings for target keywords can help raise your organic search results. Raising your ranking can lead to more clicks and increased revenue, which may create a positive ROI.

9. Continue to test

Conducting tests on your websites and apps can help you improve your ROI for individual campaigns. It can also help you collect insights for your broad digital marketing strategy. Consider running A/B tests on different aspects of your campaigns to see if making subtle changes could provide better results in alignment with your goals. You can run tests on most digital marketing channels. When running a test, focus on one element for each trial to understand which individual components affect your numbers.

10. Monitor metrics and make adjustments

Comparing your metrics over the years may help you account for subtle shifts in the market, such as seasonal demands. These changes can affect your ROI in specific quarters or as a whole. Understanding when they happen and how to adjust for them can be beneficial for your overall ROI margin. To measure all your metrics effectively, keep your data collection methods as clean as possible. This may include eliminating inconsistencies in how you collect, enter, and transfer data for analysis.

As you continue to monitor your ROI metrics, use this information and apply it to your future digital marketing campaigns. The data itself is valuable, but the information you learn from the analysis can help you determine how to budget your marketing campaigns more effectively. Tracking these elements allows you to see trends in your market and identify areas of opportunity where you can capitalize to increase your ROI.

Now that you know what your ROI objectives are, you could wish to boost it with some tricks and advice. Once more, defining precise ROI goals is the first step toward improving ROI. These have to be customized for every aspect of your marketing plan (for example, pay-per-click advertisements shouldn’t aim to achieve the same thing as SEO expenditures).

You can break down each element of your marketing plan into more specific elements after you’ve established your goals. Lead generation, conversion rates, and conversion values are all visible. This allows you to examine the frequency with which a marketing element generates new customers as well as the average amount of money they spend. This can assist you in allocating your marketing budget to the most productive and successful channels.

Ultimately, investment in high-level analytics can provide advanced breakdowns of your spending and returns. It can provide predictive modeling that helps you time your spending better and ultimately empowers you to squeeze every last drop out of your marketing investments.

Digital Marketing Metrics as Key Performance Indicators?

An initial negative return on investment is reasonable for methods aimed at building brand authority or attracting high-funnel clients, according to Shevchenko.

Shevchenko stated, “Acknowledge that the ROI of marketing activities will be negative in the beginning.” “But as the company expands, they must ensure that the return on investment from digital marketing is favorable and contributes to the company’s growth.”

According to David Azar, the founder and CEO of the digital marketing firm Outsmart Labs, using return on investment as the sole indicator of a campaign’s success is an overly limited perspective. Rather, take into account the objectives of every component of your comprehensive digital marketing plan, and allow sufficient time for each to develop before anticipating a favorable return on investment.

“ROI can’t be the only indicator of success. Impressions turn into engagement. Engagement turns into clicks. Clicks turn into sales. Measurements that show a campaign is trending in the right direction may be a stronger indicator of success than ROI,” Azar said.

Metrics besides ROI that could be used to gauge the success of early-stage digital marketing efforts include:

• Cost per lead: Cost per lead examines how much it costs to generate one lead, bringing an individual into your conversion pipeline. It is calculated by dividing the total expense of the digital marketing campaign by the number of leads generated over time. A low cost per lead is beneficial.
• Cost per acquisition: Much like cost per lead, cost per acquisition measures the expense of securing an individual paying customer. It is calculated by dividing the total campaign cost by the number of conversions attributed to that campaign.
• Impressions: Impressions refer to the number of times an advertisement or call to action (CTA) was viewed. Impressions grant insight into how many users are coming across your placement. The higher the number of impressions, the more your ad or CTA is visible.
• Click-through rate: Click-through rate, or CTR, refers to the rate at which users who see an advertisement or CTA decide to click through to the landing page. CTR is calculated by dividing the number of impressions generated by an advertisement or CTA by the number of times it was clicked. A higher CTR means users are not only seeing your ad or CTA, but also clicking on it.
• Engagement rate: Engagement rate is a metric used in content marketing that demonstrates how much interaction the content receives from audience members. Factors like comments, shares or likes influence the engagement rate. A higher engagement rate means your audience actively grapples with your content and supports brand recognition and authority.
• Customer lifetime value: Customer lifetime value, or LTV, is a metric that describes the long-term value of a converted customer. For example, a recurring customer will have a much higher LTV than a one-time shopper. Measuring the LTV of customers acquired through a digital marketing campaign could reveal a longer-term ROI associated with your digital marketing strategies.

Realizing success through an omnichannel digital marketing strategy means investing money and time. Like a vegetable garden, digital marketing begins by planting seeds; some seeds land in fertile soil and flourish, while others won’t grow as quickly.

However, with the right amount of time, attention, and patience, many of your leads can be nurtured into sales, just as plants can be nurtured to bear fruit. Because of this, a more nuanced approach to ROI analysis can help you better understand what your initial investment in a marketing campaign is worth.

“Small business owners must be willing to make a realistic commitment to digital marketing if they want to see results,” Azar said. “The expenses come first. It requires investment and patience. Depending on the campaign, results may take months. To reap sales and revenue, small business owners must begin with the end in mind, have a solid digital marketing strategy, invest, and stay the course long enough to reap sales and revenue. Along the way, they should track how the campaign is trending toward its desired goals.”

Final Words

When it comes to marketing, determining ROI can seem tricky. While more traditional PPC and social media ads can provide more specific rates of return, it can still be challenging to link hard revenue numbers to marketing content like videos and blogs. 

Regardless of which marketing strategy you’re using, monitoring the following factors can help you determine if your campaigns are really successful:

• Time: How much time did it take to create the marketing materials?
• Production Costs: Track the total cost of supplies, services, and software needed to create the campaign.
• Promotional Costs: Did you spend anything for promotion? If so, add that to your total costs.
• Page Analytics: Use a tracking URL to determine if your content is driving traffic to your product’s landing page.
• Non-Financial Returns: Did you gain any social media engagement, unexpected traffic boosts, or other bonuses from your campaign? If so, this could still be helping your level of brand awareness.