Are you trying too many channels for digital marketing but don’t know how to prove their effectiveness?
It is the dilemma faced by many digital marketing professionals.
A lot goes into creating those exciting ad campaigns and marketing efforts. However, it is unlikely to find similar conversion rates for social media campaigns and email campaigns.
One creates awareness, and the other makes sales.
We will explain how you can streamline your data collection and analysis and use the right tools to do the job.
What is Digital Marketing?
Before we explore the process and calculations involved in digital marketing ROI measurement, let us quickly review Digital Marketing itself.
It comprises marketing your products and services through a variety of digital channels.
Digital marketing leverages digital spaces like social media, search engines, and emails to increase reach and engage their target audience.
Activities involved in digital marketing include
- Search Engine Optimization (SEO)
- Online Advertisements
- Email Marketing
- Social Media Marketing
- Content Marketing
What is Digital Marketing ROI?
Digital marketing return on investment is the evaluation of the revenue generated by a business from its digital marketing efforts.
It helps businesses identify if their digital marketing efforts are worth the hassle.
It is expressed as a percentage and calculated by
Digital Marketing ROI = (Revenue - Digital Marketing Cost) / Digital Marketing Investment
Here, revenue represents the profit earned due to digital marketing activities.
Similarly, the cost involves the expenses involved in digital marketing, beginning at the planning stage to the final execution.
Choosing KPIs to Measure Digital Marketing ROI
Choosing the right key performance indicators (KPIs) is crucial to having an accurate estimate of your digital marketing ROI.
Carefully select the KPIs that closely align with your digital marketing goals and objectives to assess the effectiveness of your efforts.
Here, we discuss some of the prominent KPIs for digital marketing.
Click-Through Rate (CTR)
A click-through rate is the ratio of your ad shown versus the times it receives clicks. It is a primary metric to assess the success of your ad campaigns.
Higher click-through rates indicate an ad campaign that resonates with the audience and shows higher chances of conversions.
It is calculated by:
Click Through Rate = Total Clicks on an Ad or Link / Number of Impressions
Impressions refer to the number of times a user sees an ad.
It reflects the percentage of users on your website who convert.
Conversion is a visitor performing a desired action, such as filling out a form, signing up for a newsletter, or buying something.
Conversion rate signifies the visitors at the bottom of the funnel stage.
A higher value suggests that digital marketing activities are effectively guiding visitors to become leads or convert.
You can calculate it by
Conversion Rate = Total Conversions / Total Number of Visitors
Customer Acquisition Cost (CAC)
CAC is the cost of acquiring a customer by a business.
It includes marketing, sales, technical, and production (if relevant) expenses to bear to convince a customer to purchase.
Naturally, you would want to spend less to get more customers.
So, a lower customer acquisition cost contributes to a higher return on investment.
Customer Lifetime Value (CLV)
CLV measures all the revenue generated from one customer throughout their relationship with a business.
It can be helpful to assess the long-term returns from your digital media investments.
Consider an example where you spend day $50 on acquiring one customer, but they spend only $50 at the time, which would show a low ROI.
But if, over a year, they spend roughly the same amount after a gap of a few weeks or a month, it would justify the spending.
Return On Ad Spend (ROAS)
Focused solely on online marketing returns, ROAS measures the revenue generated for the ad money spent on online marketing.
It is a direct measure of the efficacy of online marketing in generating profit and one of the key metrics in evaluating digital marketing ROI.
You can calculate it by
Return on Ad Spend = Revenue from Ads / Cost of Ads
Carefully tracking and analyzing these KPIs enables businesses to understand whether their marketing efforts are paying off and what they can do to improve.
Analytics Tools to Track KPIs
Your KPIs can only quantify your Digital Marketing metrics if you track and analyze them using the appropriate social media and analytics tools.
Here are a few tools to track your digital marketing performance.
Social Media Pixels
Track your digital marketing performance on individual social media platforms via social media pixels.
Once installed, they allow you to track KPIs.
Though helpful, this method has a few drawbacks.
One, you need to go to every platform individually to assess your marketing performance, which is laborious.
Second, the metrics shown here are relatively superficial and do not allow a deep dive into the data to make data-driven decisions.
Resolve it by integrating your social media metrics with analytical tools like Hootsuite and Google Analytics 4 for a comprehensive analysis.
Primarily a social media management platform, Hootsuite enables businesses to automate their postings and collect data that matters.
One of its significant selling points is that it allows cross-platform social media management.
It means they can create, post, track, and analyze their digital marketing campaigns on all platforms in one place.
It also facilitates the ROI measurement process with its social media ROI calculator.
Sprout Social is a social media management tool that allows businesses to create and regulate their social media content in one place.
It also offers options like social listening and benchmarking for a deeper analysis of your social media performance.
In-built analytics allow businesses to track KPIs representative of their digital marketing performance, build reports, and collect data for ROI measurement.
It is a Customer Relationship Management tool that helps businesses create and publish content, ads, calls to action, and more.
When you integrate your social media pixels and Google Analytics metrics with HubSpot, it enables you to track your digital marketing performance.
It includes capabilities like tracking and analyzing ad campaign performances and attributing conversions.
It is a third-party analytical tool that offers comprehensive analytics, visualization, and reporting capabilities.
Businesses can use Tableau to take a deep dive into their digital marketing performance by tracking and analyzing their websites, social media, ad campaigns, and budget spent.
Their real-time data blending capabilities offer powerful insights into your digital marketing performance across channels, facilitating data-driven decisions.
Google Analytics 4
It is a web analytics tool used to track user behavior, web traffic, clicks, and e-commerce and attribute them to various channels.
Get more insights by applying relevant filters, setting up conversion tracks, and playing around with the data in Explorations.
How to Measure Digital Marketing ROI?
Now that we understand the considerations for calculating digital marketing return on investment let us review its steps.
Set Goals and Objectives
You should have a clear set of goals and objectives before creating your digital marketing strategy and campaigns.
Use these goals as your guiding light on what and how to measure while calculating ROI.
Remember, they should align with your business goals and need regular refining.
Calculate Digital Marketing Costs
Use a systematic approach to keeping track of all the costs involved in all stages of digital content marketing.
These may include direct costs of
- Planning, executing, and promoting content (ad spend)
- SEO specialists, content creators, and marketers
- Subscription fees for content, analytics, and CRM tools
- Software fees
- Overhead costs (building, etc.)
Monitor and Track KPIs
Select and monitor the relevant key performance indicators to assess how your digital marketing efforts are doing.
Set up social media pixels (for example, Meta Pixels, Twitter Analytics, and LinkedIn Insight Tag) to track the performance of your social media ads and calls to action.
Install UTM parameters on your website’s landing pages to attribute the visitors and actions to the relevant channel.
Integrate Google Tags on your website to track user journeys.
And finally, pull these into third-party analytic tools like Google Analytics 4 to monitor and track your KPIs.
The numbers on these metrics enable you to find the revenue generated by your digital marketing efforts.
Calculate the Returns for Digital Marketing
The whole point of allocating financial and other resources to digital marketing is to increase your bottom line.
You want to calculate the revenue earned by the digital marketing efforts.
It is where the data generated by KPI monitoring and analysis comes in handy.
A properly set up system can ensure the conversions get attributed to the appropriate channels.
Pool in data for e-commerce and lead generation-related KPIs to assess the profits (direct revenue, CLV) generated and non-financial gains (engagement, brand awareness).
Work out the values you wish to assign to non-financial metrics and sum up the two data sets to calculate returns.
Measure Digital Marketing ROI
You have all the necessary details about the expenses and profits associated with your digital marketing efforts.
Plug them into the ROI formula to calculate the returns.
Use MS Excel templates for the calculations, including assigning values to non-financial benefits and attributing credit to channels.
Another way to go about it is to use an online digital marketing ROI calculator that best suits the needs of your business.
Challenges in Measuring Digital Marketing ROI
Measuring digital marketing ROI can be a complicated process owing to the variety of channels for which you need these calculations.
Let us review some of the common challenges businesses face during the process.
Digital marketing campaigns take time to take effect. It is challenging sometimes to attribute increased e-commerce activity to these efforts.
As a result, the ROI for an initial period of an ad campaign could be showing poorly.
You can address the problem by having a close estimate of the project lifecycle and start collecting data accordingly.
This way, the ROI would show the cumulative growth in returns.
Inadequate Tracking and Analytics
You can only analyze what appears in your analytics.
Businesses can make the mistake of improperly setting up the tracking codes for their campaigns.
Or miss setting them up on all the relevant pages.
These issues could result in improper attribution of a conversion in the channels.
Similarly, you won’t see the results of your SEO efforts or the success of your calls to action if these codes are not installed correctly on all the relevant website pages.
How to Improve Digital Marketing ROI?
Apart from showing how your digital marketing efforts are paying off, ROI measurement also tells you what does and does not work.
Use the data produced to identify the channels you want to focus on, efforts you wish to double down on, and resources you want to pool in.
You may also want to move your resources and energies away from the channels or strategies that are not generating results.
Instead of applying changes to the entire digital marketing strategy, test it on a smaller section.
Based on your results, identify what configurations, messaging, graphics, time of posting, or other aspects work best for you.
Then, test out a few changes for a section of your content, ad campaigns, and other efforts.
Track the results to identify what is working best for you and then proceed to implement the changes across the board.
When you implement all the tracking codes and parameters, you have valuable information about your visitors.
Use that to your advantage and show them ads personalized to their needs and preferences.
It increases the chances of click-throughs and conversions, eventually contributing to a higher ROI.
Digital marketing ROI estimates the profits earned against the cost of marketing efforts targeted at the digital channels.
To measure digital marketing ROI, one needs to select and track the relevant key performance indicators.
Some examples include click-through rate, conversion rate, customer acquisition cost, customer lifetime value, and return on ad spend.
You can monitor these KPIs with the help of social media pixels, UTM tags, and social media management tools like Hootsuite or Sprout Special.
Analyze the KPIs in analytics tools like Tableau and Google Analytics 4.
Similarly, you can track the revenue generated by the relevant channels (social media ads, email marketing, CTAs) via the analytical tools.
Measure the digital marketing ROI by using the formula Digital Markeitng ROI = (Revenue - Digital Marketing Cost) / Digital Marketing Investment.
You can calculate it in an Excel template or an online digital marketing ROI calculator.
Use the results to improve your ROI by implementing data-driven changes in your digital marketing efforts. Try A/B testing on a smaller section of your digital marketing activities and then implement what works across the board.
You can also improve ROI by personalizing your digital marketing to the needs and preferences of your clients.
Interested in learning more about ROI, read our blogs here.