ROI Calculation: Is Your Digital Marketing Effective?

In digital marketing, you’ll often hear some repeated phrases …

I didn’t realize that digital marketing would cost so much.

We can’t afford to spend that much on the Internet right now.

I, however, believe that this perspective by business owners overlooks a very important fact: implementing a digital marketing strategy is a long-term investment and not simply another frivolous expense. Viewing digital marketing as an investment means that you are interested in an actual growth strategy for your company. You refuse to simply cut costs and survive in the short-term, hoping something else drives customers to your doorstep.

Greater than 80% of consumers conduct online research before making a purchase. And consumers click on one of the first five engine results 67% of the time. These percentages demonstrate that being easily found on the Internet is paramount for long-term growth.

Caveat emptor—like purchasing a stock or making a capital acquisition, not all digital marketing investments are equal; therefore, it’s important that we measure our return on investment (ROI) and gain an understanding of what works and what does not work in our strategy.

Marketers who use a multichannel marketing strategy have struggled in the past with calculating their ROI because it is a challenge to know exactly which path drove the consumer to you. It is equally challenging to know what compelled them to ultimately complete a purchase of your product or service. Fortunately, the advent of digital marketing tools, such as Google Analytics, have made the calculation of ROI for your strategy—holistic and granular—possible.

Calculating Overall Digital Marketing ROI

For the purposes of this blog, I want to focus on calculating overall digital marketing ROI. And it’s vital for us to understand that there are several pieces which allow us to accurately make this calculation. I intend to cover each piece in separate posts over the coming weeks, providing a full view of the process, including:

A quick note about making decisions based on your ROI calculations—digital marketing is a long-term investment. Making decisions based on daily or weekly data will be detrimental to your overall success. We need to look at the data and calculation over months and even years. A MOZ study found that 80% of search engine results pages changed every day, which means that we can expect daily fluctuations in our results; however, with a solid strategy, the results should trend upward over the long term.

What is ROI?

For a non-ecommerce site, such as a doctor’s office, a dentist or car dealership:

ROI = (Increase in Total Goal Value of Both Micro and Macro Conversions – Cost of SEO Campaign) / Cost of SEO Campaign

For an ecommerce site that also has a brick-and-mortar location:

ROI = [(Increase in Ecommerce Sales + Increase in Total Goal Value of Both Micro and Macro Conversions) – Cost of SEO Campaign] / Cost of SEO Campaign

**In order to calculate goal value and track both micro and macro conversions, you will need to implement Google Analytics (or some other analytics tool) onto your website.

As mentioned above, we will review the details of creating goals and developing micro and macro conversion goal values in my next post. But let’s look at a quick example for a small medical practice website that has gone through the goal setting process and identified the following goals and goal values—goal values are based on actual revenues generated by the company.

Goals

Goal Values

Contact Us Form Submission

$60

Click to Phone Call

$150

Appointment Scheduled Online

$300

Now one year has gone by since we first implemented our digital marketing strategy, and we want to see how we’ve done from a financial perspective. The following facts are true about user activity on the website over the past year:

 

Goals Increase in Conversions from Previous Year Total Return Realized
Contact Us Form Submission 550 $33,000
Click to Phone Call 450 $67,500
Appointment Scheduled Online 400 $120,000
Total Return Realized $220,500

 

The medical practice ran a Paid Search and full digital marketing strategy at a cost of $5,000 per month or $60,000 over the past year.

One Year ROI = ($220,500 – $60,000) / $60,000 = 267.5%

Calculating a positive ROI does not mean we are done quite yet. As will be shown in future posts, we need to make sure that we set appropriate goals; if we set goals incorrectly, then we can vastly over- or underestimate our ROI. For instance, a visit to the homepage should typically not be a goal with any value associated with it because the visitor hasn’t actually performed any actions.

We also need to further break down our ROI based upon the multiple channels (Adwords, social media, organic search, email marketing, etc.) and create an appropriate attribution model based on the company. If we only give credit (and all credit) to the last channel that drove a consumer to the site, then we severely underestimate the value of the online marketing campaign that initiated the customer taking action. This makes us rely too much on the first channel, leading to decisions that hurt our ROI.

Once we are comfortable with our selected goals, goal values, and attribution model, we can calculate ROI for each of our individual channels and determine where we should invest more and invest less.

This more detailed view of ROI will allow us to improve our overall return as calculated with the simple example in this post. As with any ongoing analysis performed, we will need to continually re-evaluate and adjust our goal, goal values, and attribution model based on new facts and changes that occur on our website or with the company as a whole.

Calculating a marketing campaign’s ROI has never been an easy task; however, it is now possible with digital marketing and the many analytic tools available. Over the next few weeks, we will delve into the more granular pieces of digital marketing ROI to acquire a deeper understanding of how to make great long-term growth decisions for your company.

4 comments
  1. Powerful ROI: Use Your Goal Values Effectively
    March 22, 2016 at 3:55 pm

    […] are generating the greatest return for our clients. I walked through the general idea of calculating the overall ROI of our digital marketing activities in my last post. Today, I’m going to focus on the important concept of determining the Goal Values in Google […]

    Reply
  2. Jason
    Jason
    April 7, 2016 at 4:59 pm

    Nice article! What’s your take on ROAS vs. ROI

    Reply
    • reunionmarketing
      reunionmarketing
      April 21, 2016 at 12:54 am

      Thanks for the comment, Jason!

      As someone with a background in accounting and finance, the ROI metric just appeals to me more because I feel as though it helps me make decisions about investments more effectively than ROAS. Most investment decisions that companies make are based on the expectation of a Required Return on Investment; that investment could be in a new piece of machinery, another company you are looking to acquire, or your digital marketing investment. For instance, if the company has determined that any marketing initiatives should result in margins of 150% to be deemed worthwhile (this number will vary drastically per business) – then you can see how ROAS could potentially be confusing and result in improper analysis of the investment. By calculating the ROI of our digital marketing initiative, I immediately know whether or not we are going to hit our target return. In contrast ROAS doesn’t immediately tell me if we are hitting our target return without additional calculation. For example, if a campaign costs $3,000 and returns $4,500 in revenues the metrics seem to tell different stories. ROAS would be 150% ($4,500 / $3,000) which seems great, but our ROI was only 50% [($4,500-$3000)/$3,000] which means we missed our goal by quite a lot! In my opinion, ROAS can result in some confusion when explaining your return to clients, executives, etc. because their mind is most likely on margins. Ultimately, if you understand the difference between the two metrics and how they are calculated, then they should both guide you to the same determination. However, ROI is based more around how decisions are made in a company and thus more preferable to me!

      – Ryan Szwejbka

      Reply
  3. Multi-Channel Attribution: Understanding your True ROI
    July 1, 2016 at 5:59 pm

    […] a customized attribution model for our business, it’s time to look at the results and utilize the ROI Calculations that we discussed in a previous post. Let’s say that based on our attribution model and goal values, we have the following data in […]

    Reply
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