How to Calculate ROI in Digital Marketing Campaigns

You want to know if the efforts you put in digital marketing are bringing results. You do that by checking ROI for digital marketing. Imagine you keep spending money and all of it goes in vain as you don’t see any positives from all of what you’ve spent on digital marketing. That’s why ROI and KPI are widely used performance indicators to track your progress and see if it’s okay or needs further improvement. Let’s learn how to calculate ROI on digital marketing and much more.

Understanding ROI in Simple Terms

Checking digital marketing campaigns’ ROI involves comparing the profit you earned with the cost that it took to create and run the campaign. High ROI means high profit. We use the following formula to calculate it:

The basic ROI of digital marketing formula is:

ROI = (Net Profit/Total Cost​)×100

If you want to know if your internet marketing is making money, follow these steps:

• Count how many people show interest (leads).
• Find out how many of these people become customers (a percentage).
• Multiply the number of interested people by this percentage to get the number of customers.
• Multiply the number of customers by the average amount each customer spends.
• Subtract your marketing costs from this number.
• Divide the result by your marketing costs to get your ROI (Return on Investment).

[(Number of leads x lead to customer rate x average order value) – cost for marketing] / cost for marketing = ROI

Number of leads shows how many people liked your brand or product. Lead-to-customer rate is the percentage of those leads who bought something. Say if 100 people were interested and 30 bought something, the rate is 30%. The average order value is how much customers spend per purchase. Cost for marketing means all the money you spend on digital marketing, like ads and other marketing expenses.

Check: 10 Actionable Digital Marketing Tips for Small Businesses in 2024

Key Points to Consider Before Calculating ROI

Measuring ROI in marketing sometimes requires you to customize your calculations based on marketing channels and goals you have. Say if you’re running a PPC campaign,you would need to look at each thing at a time. You might take into account the cost per click, the number of times the ad is shown, and how many of those views turn into sales.

If your main goal is sales or revenue, these calculations are pretty straightforward. But if you’re building brand awareness, you’ll need to consider brand recognition and mentions, which are harder to measure. Calculating ROI doesn’t make much sense unless you have clear goals, accurate data, the right KPIs, and a good understanding of what you’re measuring.

Understanding Objectives

Show that your digital marketing strategies are making money. You shouldn’t only focus on ROI. Figure out what your specific goals are. Not every aspect of your campaign will have a direct impact on ROI. For instance, you can track leads and clicks, but they don’t always translate directly to profit.

Identify Key Performance Indicators (KPIs)

Every company is different and that’s why their KPIs must be customized to fit. Below are some popular KPIs to consider:

• Unique Monthly Visitors: How many people visit your website in a month.
• Cost Per Lead (CPL): How much it costs to get each lead.
• Cost Per Acquisition (CPA): How much you spend to get each customer.
• Return on Ad Spend (ROAS): Profit from an ad compared to its cost.
• Average Order Value (AOV): The average value of each customer’s purchase.
• Customer Lifetime Value (LTV): How much a customer is worth over time.
• Lead-to-Close Ratio: The number of leads that turn into sales.
• Branded Search Lift: How many people search specifically for your brand.
• Average Position: Your website’s ranking in search results.
• Non-Brand Click-Through Rate (CTR): Clicks on your site from non-branded searches.

Read: Full Digital Marketing Plan and Budget Example

Ensure Clean Data Collection

Collect accurate data because using inaccurate data will give you the wrong KPI and ROI numbers. Purchase and use the right software and make sure that your sales and marketing teams are using the same system.

Understand How KPIs Fit into the Bigger Picture

Don’t just focus on ROI to measure your digital marketing’s success. Look at the higher click-through rate and lower cost-per-customer to see how good your marketing’s ROI is. Understand how all your key performance indicators (KPIs) affect each other.

Draw Insights from KPIs to Measure ROI

Track website traffic, CPL, and search rankings to check if your marketing attracts and converts customers. More interactions means higher ROI. Use the right KPIs, collect clean data, and see the bigger picture and you will improve your digital marketing ROI.

What to Track?

When calculating ROI in digital marketing, look at your audience, the size of your company, your business goals, and the industry you’re in. Let’s see how these factors affect your digital marketing ROI:

Cost per Lead

It tells you the money you’re spending to acquire a customer. You can use this to figure out if you are getting more money back than you are spending.

Formula: Cost per lead = Total marketing costs / Number of leads acquired

Lead Close Rate

The conversion rate shows how well your sales process works and how good your leads are. A higher close rate means you make more money.

Formula: Lead close rate = Number of conversions / Number of leads

Cost per Acquisition (CPA)

CPA tells how much it really costs to get a customer through marketing. It helps you decide where to spend the budget and makes your campaigns work better.

Formula: CPA = Total marketing costs / Number of customers acquired

Average Order Value (AOV)

AOV tells the average amount customers spend on your offerings. It helps you figure out prices and deals. Higher AOV means more money without needing more customers.

Formula: AOV = Total revenue / Number of orders

Click-Through Rate (CTR)

CTR tells you how many people click on your ad or link after they see it. When your CTR is higher, you usually get more traffic and potentially more conversions, which is good for your ROI.

Formula: CTR = (Total clicks on ad / Total impressions) * 100

Customer Lifetime Value (CLV)

CLV tells how much money a customer will spend at your business. If the CLV is high, you can spend more to get new customers, and it helps the business grow for a long time.

CLV = (Average annual revenue per customer x Average customer lifespan) – Cost per acquisition.

Did You Know

• Email Marketing ROI: Email marketing boasts an impressive average ROI of 3,600%, meaning for every dollar spent, companies can expect to earn $36 back.
• SEO Effectiveness: Search Engine Optimization (SEO) offers an average ROI of 2,200%, translating to a 22:1 return on investment, making it one of the most profitable digital marketing strategies.
• Blogging Benefits: Businesses that utilize blogging as a marketing tool are 13 times more likely to achieve a positive ROI compared to those that do not engage in blogging.
• Google Ads Performance: On average, companies generate $2 in revenue for every $1 spent on Google Ads, demonstrating the effectiveness of paid search advertising.
• Influencer Marketing Impact: Approximately 89% of marketers report that the ROI from influencer marketing is comparable to or better than that of other marketing channels, indicating its growing importance in digital strategies.
• Segmentation in Email Marketing: Marketing campaigns that utilize segmented email lists can see a staggering 760% increase in revenue, showcasing the power of targeted communication.
• Video Marketing Growth: Video marketing can lead to a 49% faster growth in revenue for online marketers compared to those who do not use video content in their campaigns.
• Content Marketing ROI: Content marketing typically yields an ROI that is approximately three times higher than that of paid search, emphasizing the long-term benefits of quality content creation.
• Social Media Marketing Growth: Social media marketing has an average ROI of 95%, highlighting its effectiveness in engaging audiences and driving sales.
• Conversion Rates: Companies that implement video marketing strategies experience conversion rates that are six times higher than those that do not use video, underscoring the importance of visual content in digital marketing.

Use Google Analytics to Track and Evaluate Their Digital Marketing Efforts

No matter if your business sells to other businesses or directly to consumers, Google Analytics gives you important info to improve your online marketing. It shows you how people find your website, whether it’s through search engines, social media, or ads. Google Analytics also tells you where your traffic comes from, like Google, Facebook, or other websites, and gives you detailed stats on things like page views, bounce rates, and online sales. With all this data, you can learn about your visitors, like where they come from, which pages they like, how many of them make a purchase, and more.

This info helps you make your marketing better and get more people to buy your products or services. If you pair Google Analytics with tools like Google Data Studio, Bing Webmaster Tools, and MarketingCloudFX, you can dive even deeper into your data and make your marketing even more effective. Google Data Studio, for example, lets you make cool visual reports that bring together data from lots of different places, so you can see how well your online marketing is doing overall.

Read: What is Google Analytics and How Does It Work? A Brief Guide

• Create Custom Goals in Google Analytics

Customize your goals in Google Analytics to track specific actions that are important to your business, like newsletter sign-ups or online purchases. This will help you figure out how well your website is doing and calculate the return on investment (ROI) of your marketing efforts. To set up custom goals, just head to Admin in Google Analytics, then click on Goals under the View column.

• Account for Multiple Touchpoints

When it comes to your business, customers often engage with you through various channels before making a purchase. Google Analytics’ Attribution feature can help you analyze each interaction, such as a Google search, blog visit, or PPC ad click, and see how they contribute to conversions. With attribution models like Last Click, First Click, and others, you can accurately credit touchpoints. You can find this data under Conversions > Multi-Channel Funnels in Google Analytics.

• Set Up UTM Parameters to Track Campaigns

Use UTM parameters to track how well your online marketing is doing. You can add these parameters to your URLs using Google’s free tool. They show you where your traffic is coming from (source, medium, campaign name) and help you figure out how well your different marketing efforts are working in Google Analytics.

• Build Dashboards to Track Strategy Performance

Create digital marketing dashboards, maybe using Google Data Studio, to bring together and show data in a visual way. Dashboards summarize important numbers like lead generation, sales, ROI by channel, and website conversion rates. Making these dashboards your own helps you focus on the most important numbers for your business goals and easily see trends or areas that need improvement

Remember these tips and use tools like Google Analytics the right way to improve your online marketing and get better insights into campaign performance and ROI.

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Simple Steps to Help you with Improving ROI

We will thoroughly explore each step with detailed information.

Use data wisely

Start off by setting up solid data collection using tools like Google Analytics. This means keeping an eye on important stuff like where your traffic is coming from, how users behave (like how long they stay on the site and which pages they visit), and conversion rates. By analyzing this data, you can figure out what’s going well and what could use some work in your digital marketing efforts. Say there are people who leave your website immediately after landing. If that’s the case, tweaking your strategy is recommend..

Set clear goals

Don’t just set random goals. They must be measurable and specific.

• Specific: Remember what you want to achieve exactly (for example, increase ROI by 50%).
• Measurable: Track progress toward your goal by identifying metrics such as revenue generated from digital campaigns.
• Achievable: Make sure your goals don’t overwhelm your resources.
• Relevant: Make sure your goals make sense with business objectives for a meaningful contribution.
• Time-bound: Set deadlines to impact your productivity in a positive way.

Focus on meaningful metrics

Below we present to you some metrics that you must focus on instead of just focusing on site visitors and social media followers. Understand what really affects business results and adjust strategies accordingly:

• Conversion rate: Percentage of visitors who take actions, make a purchase or fill out a form.
• Repeat page views: Tells you the user interest and involvement with your content.
• Comments per post: Shows you your audience interaction and interest in what you offer.

Automate where possible

Use marketing automation tools such as email marketing platforms like Mailchimp and HubSpot to simplify repetitive tasks that take a lot of time.  They help you with the following:

• Email campaigns: Send personalized emails automatically based on user behavior or segment.
• Audience segmentation: Divide your customers based on demographics, behaviors, or interests to create targeted messages.
• Analytics and reporting: Collect and report data automatically to get instant feedback on how your campaign is performing.

Test and optimize

Keep testing and making things better all the time to get the most out of your investment. Try different things to see what works best, and get rid of the things that don’t work:

• A/B testing: Compare different versions of ads, landing pages, or emails to find out which one performs better.
• Multivariate testing: Simultaneously test multiple variables to understand how they impact results when combined.
• Iterative improvements: Continuously improve strategies and tactics based on test results.

Studies have Shown that CTR Correlates with Return on Investment

When many people click on your ads, you’re making more money. That’s because when people click on your ads, they usually spend money, which helps you make even more. So, when lots of people click on your ads, it means your ads are working and bringing in many visitors and sales. If your ads don’t grab people’s attention, you won’t get many clicks or conversions. This means you’re not getting the most out of your marketing budget. It’s important to make sure your ads are interesting and relevant to maximize your marketing investment.

To make people click on your ads more and make more money, try making your ads really interesting and using cool pictures. You can also try different versions of your ad and show it to specific groups of people. And don’t forget to check how your ads are doing. This can help you make ads that more people like and that make more money. By working on both getting more clicks and making more money from your ads, you can bring more of the right people to your website, get them more interested, and ultimately make your digital marketing efforts more profitable.

Summary

Figuring out the ROI in digital marketing is super important for knowing how well your campaigns are doing and making smart decisions. Keep an eye on the right numbers, set clear goals, and keep improving your strategies to get the most out of your marketing and make sure every dollar you spend pays off. In today’s tough digital world, a well-calculated ROI not only shows how well you’re doing but also helps you decide where to invest in your future marketing efforts. And if you’re looking to figure out your ROI, reach out to First Growth Agency to get a precise report on how well your business is doing.