Digital Marketing ROI: Here’s How To Calculate And Improve It

Only a few years back, marketers and business owners, especially in the e-commerce world had trouble in understanding the results of their efforts and investments. However, over the course of years, this problem has been resolved with constant developments in the businesses and e-commerce sectors.

For digital marketers, analysing and measuring the extent of their marketing efforts’ success has become even easier with the ROI. This article explores the nature of Digital Marketing ROI, how to calculate it and also ways in which you can improve your online ROI.

What Is Meant By Digital Marketing ROI?

Digital Marketing ROI (Return Of Investment) refers to the profit or loss that a company’s digital marketing campaigns generate. This is based on the amount of financial resources you invest in these said campaigns ROI is a way of understanding if you are getting your money’s worth at the expense of your marketing strategies and efforts. If the ROI is positive, it means the marketing campaigns are bringing in more money than the investment. But if it is in the negatives, you need to work on your digital marketing.

Calculating the digital ROI is essential for you to understand the direction in which your marketing is taking you in. Furthermore, it is important to understand if your marketing budget is getting allocated wisely and your plans are effective or not. If the money is going to waste, you would know it from calculating the ROI and it then becomes important from the improvement point of view. Read below to know of ways in which you can calculate your ROI.

How To Calculate Your Digital ROI?

We have enlisted and talked about the top 5 ways that can help you understand and measure your digital marketing ROI:-

1. Conversion Rate

Out of all metrics for measuring the ROI over a given time period, conversion rate is probably the most popular. Majority of businesses aim to increase their conversions and for this reason, calculating your conversion rate can help you resource your budget accordingly for better results. Among the most popular ways is calculating the ROI by channels.

The simple logic is to understand which channels are giving higher ROIs in forms of conversions and invest more in them. Another important ROI measurement metric is conversion through devices. In your analysis, you may come across a device that has a lesser conversion rate but higher traffic rate. In such a situation, it is best to revise the marketing strategies for the channel for better ROI.

2. Cost Per Acquisition

The cost per acquisition of your company is indicative of the average cost incurred in acquiring a new customer. If you want to calculate your cost per acquisition, you need to divide the total marketing costs with the total number of sales your company has managed to generate.

When you understand how much you are spending in acquiring a new customer, you can accordingly fix your marketing strategies for improved ROI if need be. If your company’s cost for acquiring a customer is more than what your business is getting from the customer, your ROI is negative. And this means that you need to revise your marketing campaigns to reduce your cost per acquisition.

3. Cost Per Lead

Before you move on to cost per acquisition, you can measure your cost per lead to understand and measure the ROI of your company. The logic of measuring this metric is similar to the previous one. You need to measure how much you are investing in collecting each lead for your sales team. This will give you an idea about the collective ROI for each campaign.

You can do this by the total amount spent on the lead generation campaign by the total number of leads generated through that particular campaign. Again, if the cost per lead is more than the amount you are able to produce at the time of closing the lead, the ROI is negative and needs to be worked upon.

4. Lead Close Rate

Although this metric is less explored by digital marketers it is an essential one. Monitoring the lead close rate can give you a reality check into the effectiveness of your marketing campaigns. A comparative analysis of the lead close rate and lead generation can help you measure the ROI of your campaign.

Measuring the lead close rate can help you get the percentage of leads that have really converted into sales. This ratio can also help you get a comparative analysis of the old and new marketing campaigns and the ROIs can help you decide if you could go ahead with the new campaigns or go back to the old ones.

5. Customer Lifetime Value

The customer lifetime value is one of the most important metrics for measuring your digital marketing ROI. By exploring this metric, you can understand what the average consumer is likely to spend with your company over their lifetime.

As important as the customer acquisition costs are for your business, so is this metric because it gives an understanding o f the overall value a customer brings to your company. Customer lifetime value can give you an idea about long-term profits or losses you may incur after initially investing in acquiring that customer. This can help you get a wider understanding of the initial costs and the ROI.

Tips To Improve Digital Marketing ROI

If your digital marketing ROI is in the negative, you need to revisit your marketing strategy and implement relevant changes. To help you overcome this issue, we have thrown light on some ways you can improve your digital marketing ROI below:-

1. Set Clear ROI Goals

Setting clear ROI goals is an absolutely essential step that influences your marketing strategies. When setting your ROI goals, the best way to do it is on the SMART lines – Specific, Measurable, Achievable, Relevant, and Time-bound. Another interesting takeaway is to implement your ROI in the 5:1 ratio where 5 represents your sales earning and 1 represents the amount you invest in generating that sale through marketing.

Even better would be to define your goals with numbers. For example, simply deciding that you want to increase your lead generation through upcoming campaigns might not give you direction. Instead decide something like “increase 30% lead generation in 6 months.” This can help your planning be more directed and the specificity can make it more achievable.

2. Avoiding Overvalued Metrics

Another important way to get your ROI back on track is to avoid judging and considering overvalued metrics such as likes, shares and comments on your social media platforms as indicative of your ROI. Such metrics have nothing to do with the revenue collected by your company. These metrics are good for understanding the engagement on your social media posts but do not directly reveal anything about the revenue.

This is because everyone who likes a post about a product might not necessarily buy it and everyone who buys it might not necessarily engage with the post. But this also does not mean that you entirely ignore or discard them. The reason is that metrics like shares, comments, and likes contribute towards a higher ranking for your business on Google and other search engines and on the basis of these new users are introduced to your brand.

3. Identify Opportunities And Act On Them

Simply tracking relevant metrics over time is not going to help you improve it unless you actually work towards it. The data that you have collected has to be thoroughly analysed over a period of time. This can give you an idea about certain ongoing trends in your digital marketing strategy. These trends can eventually lead you to the opportunities which once identified, can be worked upon by changing the strategy accordingly.

Also try to identify opportunities across different channels. Implementing different strategies over a course of time and monitoring them also gives you demographical data. For example, you find out that the majority of your users are young and are primarily mobile device users. That is an opportunity for you to act upon. You now need to modify your marketing strategies in such a way that you can attract the younger audiences and apply mobile device strategies to your plans as well.

4. Marketing Automation

Implementing marketing automation is yet another way of improving your digital marketing ROI. This can prove to be beneficial as there is a constant multiplication of channels and in turn wide distribution of data. Therefore, marketers have now started using marketing automation tools for increasing the scope of their marketing budget.

The marketing automation tools can effectively give you all the value of your money to boost your digital marketing ROI. This is possible as marketing automation processes can help deal with complex marketing tasks. These include repeatedly performing certain actions, managing email lists, taking care of storage of essential media files and documents and much more even with limited resources.

5. Predictive Modelling

Predictive Modelling is a tool that can help you perform two essential ROI functions – measure your digital ROI as well as increase it. Predictive modelling primarily used to help in sales and for project conversions. However, it has now been included as an important part of the marketing campaigns because of the increase in its scope of functionalities.

Predictive modelling analytical tools can help marketers use the data from social, internal and website sources for interpreting specific information about companies as well as specific customers on a certain contextual basis. Depending on these insights, marketers can develop appropriate strategies.

Digital marketing ROI is a key part of any firm’s marketing and revenue practices. It is a must for marketers to pay special attention to the ROI to help understand the result of their activities better and improve wherever possible! And we hope that the article was helpful in understanding the ways in which you can calculate as well as improve it.