How To Calculate ROI In Digital Marketing
If you believe everything you read then a successful online marketing campaign requires a budget of a least few million pounds to guarantee a solid ROI. This is, of course, possible for household names with deep pockets and a large R&D budget to spank.
But what if you’re a small business that has a digital marketing budget of £100,000 per annum or less? How do you ensure your digital marketing strategy is going to deliver the ROI needed to boost sales and generate new business.
This post will delve into both how to calculate ROI the right way as well as providing valuable insight on how to focus your digital marketing strategy to deliver the results you want.
Why Measure Your Digital Marketing ROI
In the digital marketing world, too much emphasis is often based on what we call 'vanity metrics' including impressions, “likes,” shares, comments, followers, engagement rates, traffic, time on site, bounce rate, and more.
No one can deny that it's not great seeing those numbers go up, but, these metrics don't provide a clear picture of how they directly affect your sales.
The issue is, businesses are not interested in vanity metrics. Business owners are most interested in hard numbers and their number one priority will be making sure their investment comes with a profitable return.
Being able to calculate the ROI on an online marketing campaign and show the figures to your clients will help ensure they keep coming back. Luckily for you, we wrote a step-by-step post on how to use our digital marketing ROI calculator.
When it comes to successful online marketing, if you're not measuring your ROI then you might be throwing money away.
Measuring the return on your digital marketing investment is the only way to know for sure that you are getting the most out of your marketing spend.
How to calculate ROI in digital marketing
The ROI formula simply comes down to revenue and, sadly, many agencies avoid this truth. The basic formula for calculating ROI is Traffic x Conversion Rate % = Number of conversions.
If you have a further step such as a proposal requirement, then multiply this figure again by your Conversion Rate % (Lead to Sale). Then multiply this figure by your Average Order Value, and you will have a very quick calculation of ROI.
You can easily calculate this using Excel or take advantage of our free ROI Calculator to give you the answers that you need.
We've created this free digital marketing ROI calculator to uncover the real revenue growth potential of your marketing. The only metrics to measure that remains constant in this game are traffic and conversions.
Don't just take my word for it. Perhaps the most well respected digital marketer in the world, Ryan Deiss, of Digital Marketer preaches this too. He even runs an annual conference each year just dedicated to these two metrics.
Top takeaways from Traffic and Conversion Summit 2018
Setting a clear objective is the first stage in marketing success. Watch our video on planning your revenue growth goals if you need some help with this.
Setting Clear Objectives With The Sizzle
Sell the sizzle they say. But what if the sizzle isn't actually delivering a return on your online marketing budget? Is it still worth the whiff of what-could-be?
In poker, they call this being pot-committed - where a player is so heavily invested in a hand that they risk it all in a moment of madness, only to often lose to the smarter player who was reeling them in all the while.
So for the purposes of this post, I wanted to define the 'sizzle' as any marketing activities that does not have a meaningful, measurable result at the end of it. For businesses with smaller budgets, realising a return on investment is key.
With this in mind, the focus must be on revenue generated. Profitability isn't really a marketer's job. That's down to the business, it's pricing strategy, positioning within the marketplace, customer service, and various other factors outside of the control of a digital marketing agency.
Do not be sold short on sizzle. The question has to be asked: if we achieve X, what will the tangible (monetary) benefit be for my business?
If whoever is doing your marketing cannot answer this question (so long as they have the necessary data), you are buying into sizzle.
The Digital Marketing Strategy 'sausage'
So what is the 'sausage' exactly?
For this post I want to define the sausage as being the very core principles that make your business more leads and more money - simple.
The results are clear, transparent, and translate very clearly into pounds and pence. No, it's not going to get you featured on Alexa, but it will drive results.
The core ROI metrics that you should be concerned about when it comes to your digital marketing strategy at lower budgets should be focused and easy to quantify.
Complex layering of metrics such as cross-channel attribution should be reserved for those who have the budget and resources for the job, to avoid diluting your true needs.
Research
Understanding how you're going to achieve your objective is pretty important and requires research.
This is valuable time that needs to give you a starting point. Even if you've never marketed before and have little or no historical data to pull from, there is enough out there to give you the research required to take a calculated risk.
Use free tools such as Google Trends, Keyword Planner, Answer The Public, YouGov, and your competitors' websites as a starting point.
Traffic and conversions
Driving quality traffic to impactful landing pages, with a clear call to action, is as simple as it gets. If you have an annual digital marketing budget of £100,000 or less, this should (in most cases) form your strategy. You will want to split this budget into two key areas:
Traffic Acquisition - driving increased volume and quality traffic to your website
Conversion Optimisation - ensuring that those visitors convert into opportunities
Focusing on making people aware of your business, what it does, and how it helps them, is perhaps the most fundamental part of marketing. Driving this awareness to owned media (your website, for example) will enable you to further engage them.
Focusing on channels that excel in this area is extremely important, whether that's through SEO, PPC, or other. Whatever channel you use, make sure that you have a focused objective to work towards, and that it's being measured over time.
Concentrate your efforts by allocating plenty of budget to these channels. You'll soon know if they're working or not, and you can make future decisions easier.
Diluting across too many channels will yield slower action and will provide inconclusive results and frustration.
Strategy
The next step is to layer some guiding principles that you'll follow to maintain your focus. This might be a location, audience, product or service, or similar set of definitive 'tick boxes'.
If what you're doing does not follow your strategy, then question if it's really part of your plan.
Without getting into the detail of how to create a strategy, the core things that should be considered include (but aren't limited to);
Audience - who is your marketing aimed at? What are their pain points? What challenges do they have? What are their goals? How does your product or service meet their need?
Device/channel - where is your audience hanging out? Where are they likely to look for a solution? Are they on the go? Is it at the weekend together with their partner?
Product/service - what specific products or services are you focused on marketing? Again, avoid diluting across everything. You don't need to shout about everything if your budget doesn't allow for it.
Geographic - where in the world are you targeting? The world? Do you really have the budget to reach the entire world? What about the UK? What about just your region?
Ensuring that your strategy is simple enough to grasp in one glance will help you to stick to it. Pages and pages of 'strategy' is not a good thing. If you can't succinctly communicate your strategy, it's not good enough. Worse, it probably won't be followed.
Key Results & Their Metrics
Taking your objective and breaking it down into smaller milestones or mini-objectives will make your life a lot easier. Start by working backward from your objective to identify what you need to do first.
If this is difficult, try to divide the goal by two, then two again to get yourself started.
For example if your goal is to generate 100 leads, split this down into two. How will you achieve the first 50? Divide by two again. How will you achieve 25 leads?
And so forth until you have a set of manageable goals that together make up the objective.
Day To Day Activities
Lastly, the activities or actions that you need to complete on a day-to-day basis. Each should have purpose aimed at moving you closer towards your key result and objective, otherwise the value of that activity should be questioned.
How does a mouse eat an elephant? One bite at a time.
By assigning activities to key results, or smaller goals, they are likely to be more focused and meaningful since you're working within a confined and definitive set of requirements.
Trying to task out against a much bigger goal often results in a broad brush approach that can be unclear.
For example, think about buying a house. The objective is to buy the house. Tasking something like this out is likely to look something like this:
Establish a budget
Find a house
Obtain a mortgage
Agree a price for the house
Exchange contracts
Complete purchase
Move in
A sensible list? Yes. A broad brush list? Yes. Now consider if each of those steps was a key result. Let's take 'Obtain a mortgage' as an example. Our task list might look something like:
Compile a list of potential lenders
Enquire with all lenders to understand available mortgage offers
Select the best lender for my needs
Obtain mortgage in principle
Submit all required documents
Obtain official mortgage offer
As you can see, just the fact that we've zero'd in on a specific part of the overall objective means that we have a much clearer set of activities to now follow.
If we complete those actions, we should end up with a mortgage offer. If we end up with a mortgage offer, we'll be one step closer to our objective of buying a new house.
Here are some other questions that people are asking when it comes to calculating online marketing ROI:
How do you measure digital marketing the right way?
There are many metrics that can be measured. It's important to determine if you need leading (forecasting the future) or lagging (telling you what happened) indicators.
Stick to metrics that will give you the best indication of how you are progressing against your objectives. This might be traffic growth from [channel], or revenue per visit for an overall value of your efforts.
How can ROI be improved in digital marketing?
We believe that there are only, really, two things that are important to growing ROI through digital channels; traffic and conversions.
If you build quality traffic and convert it at a high rate, the outcome is almost certainly going to be an increase in ROI.
How do you optimise ROI?
ROI is optimised by focusing on the indicators around each product or service.
Build quality traffic that grows in volume, and continually optimise landing pages to deliver on the user's wants and needs. This way you optimise the outcomes and grow return on investment.
How to calculate ROI in digital marketing
I hope this post has given you food for thought as to how a business with a digital marketing budget of £100,000 or less can concentrate efforts to provide a much more likely return on investment.
There are some clear things that you now need to go away and do:
Work out your current position
Calculate your ROI using our Growth Calculator formula to forecast your desired ROI and objectives required
Create a simple strategy to follow
Break down your objective into key results
Ensure your day-to-day activities are definite and purposeful
Execute and measure
If you complete the right activities, you'll complete your key results. Complete your key results following your strategy, and you'll achieve your objective. Achieve your objective, and you'll boost your ROI.
And if you require specialist help along the way, and like our methodology, then please get in touch with our Partnerships Team. We'll listen to your objectives and challenges and, if we're a good fit, we'll create a bespoke proposal to meet your needs.
