digital marketing ROI - what is it & how to measure it
1st December 2022, by Daniela Coleman
Digital Marketing ROI
Every business requires a marketing campaign in one form or another. The most popular and efficient form of marketing today is digital marketing. It has many important aspects, but today we want to talk about return on investment. Digital marketing ROI is one of the most essential elements of a marketing campaign. It makes the difference between having a successful or unsuccessful project. With that in mind, let us discuss what it is and how to measure it!
What is digital marketing ROI?
Return on investment is the amount of money you get back as profit on any investment in your business. It is the difference between the money spent and the money earned. From that, digital marketing ROI is the indicator of whether your investment in a marketing campaign paid off.
To become an excellent marketing expert, it is crucial to master the process of tracking and improving digital marketing ROI.
How to track a return on investment?
There are many ways to track ROI on your digital marketing efforts. What is essential to understand is that your expenditures happen in multiple places. That is why you need to keep track of these investments through various processes. Today we want to cover some of the most efficient approaches that include:
● Measuring the conversion rate
● Tracking the cost per lead
● Lead close rate
● Cost per acquisition
● Average order value
● Customer lifetime value
The conversion rate and ROI
Simply speaking, the conversion rate directly affects your return on investment. Your profit increases when a potential client converts into a paying customer. If you are looking for a high overview of your ROI, you can simply add up all expenses and compare them with the conversion profit.
However, this alone is not enough to track ROI precisely. A marketing campaign has many different elements. For example, you could boost your organic traffic through SEO. Even if that brings exceptional results, your marketing campaign could be more successful. You might have financial losses in other sectors.
The importance of the cost per lead
If we break up any marketing campaign into different segments, we will notice a pattern in various investments. Remember also that a marketing campaign can target different areas of your business. So, if the goal is to gather more leads for the sales team, you would want to know how much money you earn from one lead. To get this number, you have to divide the total amount you spend on advertising by the number of leads acquired with that ad. The next step would be to compare the number with the lead close rate.
Calculating the lead close rate
After an agent closes a deal on a lead, that lead converts to a paying customer and brings profit to the company. At that moment, you need to take the profit made and compare it with the cost per lead. If the cost per lead is higher, the company is losing money on advertising. You are spending more than you are earning back.
As a suggestion from MoversTech CRM, it is an excellent strategy to use a CRM system to support your marketing campaign. By collecting and analysing customer data, you are more likely to create a marketing system that will benefit the company and earn a higher profit from what you are spending on advertising. It is imperative to use customer information when creating a marketing campaign.
Cost per acquisition
Getting new customers costs money. Cost per acquisition tells you how much you need to spend to acquire one new customer. To get this metric, you should divide the amount of money spent on advertising by the number of conversions that contribute to this campaign.
As with the cost per lead, if the cost per acquisition is higher than the profit, you need to change your financing plan and control advertising costs.
Calculating the average order value
Even though you make a profit with every customer purchase, you also need to spend more on order fulfilment. Once the sale happens, there is a delivery process that happens. If you divide the total revenue by the number of orders, you will know how much money every order costs.
If the number of orders goes up, but the average order value also goes up, you need to figure out how the company is losing money. If you optimise and streamline the entire order fulfilment process, you can save a lot of money and increase the total revenue of the company.
Customer lifetime value
Even at positive metrics, getting one customer does not mean that the customer will bring long-term value to the company. Customer lifetime value helps you understand how much money each customer will bring to the company over time.
For example, if you spend $50 to obtain one client, and they make a purchase of $25, that looks like a negative ROI. However, if they continue to make $25 purchases a couple of times every month, you are doing good business. The customer is bringing more value to the company.
Keep in mind that you cannot precisely know the customer lifetime value of each customer. What you can do is take data, analyse it, and come up with a forecast that will help you get a fresh perspective. The idea is to understand shopping patterns and figure out early if the customer brings more value over time.
Keep track of your metrics to secure the success of your business
As you can see, there are many different metrics you need to keep track of. That is an essential part of doing business. To get an accurate digital marketing ROI, you must consider all of the above, not just a single metric. With that in mind, understand that each marketing campaign should be an improved version of the previous one. That is the only way to reduce advertising costs over time and generate more profit.