Calculating Digital Marketing ROI: What You Need to Know Nowadays

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It is common knowledge that digital marketing is a form of marketing with a high return on investment. Companies are spending upwards of $250 billion annually on digital marketing campaigns but do they know the return they are getting on that spend? To find out more about how to calculate your digital marketing ROI, here is what you need to know.


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Theory vs. practice

Every action that someone takes online can be converted into a number, and through the application of specific formulas, these quantities can be turned into various kinds of data. Companies can use this data to analyze the performance of their digital marketing campaigns, which allows them to make informed business decisions.

This constant stream of feedback is the main difference between digital marketing and its "analog" counterparts. Since digital marketing is data-centric in nature, business owners can have a much easier time calculating their return on investment for each particular campaign. Or at least that's how the theory goes.

In practice, the wide variety of data that you can gather can make it difficult to determine which numbers really matter, and which are just fluff. Many businesses have fallen prey to scams that promise to boost specific digital marketing metrics, only to find out later that none of them have an impact on their bottom line.

To prevent this, business owners should get acquainted with metrics that actually indicate a good ROI, and avoid those that are only useful as bragging rights. In order to acquire an accurate picture of your digital marketing ROI, you need to pay attention to the following.

Recommended reading: Digital Marketing: Trends and Opportunities in 2018

Actionable metrics

From a business perspective, a useful metric is one that allows business owners to make informed actions. In the context of digital marketing, these so-called "actionable metrics" will enable you to gauge your campaign ROI, so you can make adjustments where needed. Tip: if you are outsourcing your digital marketing to a third-party marketing agency, be sure to specify that you are looking for a way to improve the following metrics.

Conversion rate

This metric tells you how many website visitors have successfully gone through your conversion funnel. This means that each visitor took the appropriate CTA when prompted, at each stage of the conversion process. To calculate your conversion rate, simply take the number of conversions in a given time period, and divide it by the number of site visitors for the same period.

Average order value

This metric shows how much your customers are spending on average with each purchase. Increasing AOV is one of the main goals of digital marketing, which makes this metric a good indicator of marketing ROI. To calculate AOV, divide your revenue for a particular period with the total number of orders placed within the same period.

Customer lifetime value

This metric indicates how much a single customer is likely to earn you over the course of your entire relationship. Knowing your CLV is crucial for predicting long-term business growth, as it shifts the focus away from monthly or quarterly profits. If your profit margins and retention rates are constant, the formula for calculating CLV is best expressed in the form of an equation: profit margin * retention rate / (1 – discount rate + retention rate).

Cost per acquisition

This metric indicates how much it costs on average to acquire a single customer. CPA is a financial metric which is used to directly measure the revenue impact of a given marketing campaign. Once you know your AOV and CLV, you can determine the point at which your CPA still produces a profit. To calculate CPA, divide your total marketing campaign costs with the number of acquisitions.

Vanity metrics

On the other side of the spectrum, there are metrics which are not particularly helpful for calculating your marketing ROI. At best, they are useful for some tracking, at worst, they can mislead you into thinking that your campaigns are performing well. Again, if you are hiring a third-party to run your digital marketing campaigns, be sure that you're getting something besides a boost in one of the following metrics.

Page views

This metric represents the total number of visitors for each page of your website. It simply indicates how popular a given page is. What it doesn't show is where the visitors are coming from, with what intent, and what they are doing once they arrive. For these reasons, page views are a poor indicator of ROI. To make matters worse, page views can easily be manipulated for specific purposes, which makes them untrustworthy.

Social media likes

This metric indicates how many people have "liked" (or the equivalent) each of your social media posts. And just like with page views, there is little insight to be gleaned from the fact that someone happened to click the like button. It is hard to correlate likes with activities that actually do matter to your business, such as CTAs. "Likes" might be an indicator of engagement, but their usefulness for calculating social media marketing ROI is highly suspect.

Email open rate

The email open rate is a metric that is an indication of how many people view the emails you send out as part of a marketing campaign. The problem with this metric is the fact that is based on whether a small embedded image manages to load upon someone opening the email. Since most mail clients don't load images by default, it can be very difficult to measure which percentage of emails were actually opened.

Number of subscribers

This metric track the number of subscribers to your newsletters and other kinds of periodic content updates. What it doesn't show is how subscribers are acting upon receiving said updates. So while you may have a large number of subscribers, it is quite possible that your content is ending up in the spam folder, possibly without the subscriber even knowing that it's there. And without knowing what subscribers are doing upon receiving your content, you have little means of judging the ROI for such a campaign.

The ability to accurately measure ROI is one of the main advantages of digital marketing. However, not all metrics are equally useful for this purpose. Hopefully, our guide can help you distinguish which are which, thus ensuring that your ROI calculations are always providing relevant, accurate, and up-to-date results.

Over to you now. What metrics do you use for your digital marketing measurement? Tell us in the comments below. 

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