High-level decisions must always be made with the bottom line in mind, and any money going out of the company’s doors should bring back a greater value in return. That’s a critical tenet of smart business. You don’t want to pay more for a sales lead than you would gain in profit.
Despite this focus, many business leaders find measuring digital marketing ROI a daunting task. They view it as an elusive shadow that cannot be grasped, much less quantified. This viewpoint is often a result of practicing years of traditional marketing, and feeling a sense of helplessness about how to evaluate the web-based direction business has taken in the new millennium. “Paralysis by analysis” results, with online objectives that are murky at best, or nonexistent at worst.
The goal of this guide is to eliminate the sense of helplessness that surrounds digital marketing ROI. Once you’re comfortable with how to measure it, you’ll have a stronger hold on your overall digital marketing ROI as well as ROI by channel and campaign.
One of the biggest questions many executives ask is: “Where do I even begin?” It’s a great question, one we’re asked all the time.
Finding a starting point is often the most painful aspect of a business endeavor, and ROI is no exception. As we mentioned previously, many executives experience “paralysis by analysis” when it comes to establishing a preliminary baseline. This procrastination comes from not being able to corral all of the data to make a precise measurement.
Aspiring for ideal precision is the first mistake. Once you accept that absolute perfection is out of your grasp, and that it’s okay to use averages instead of exact figures in some instances, you’ve already taken a giant step toward establishing that baseline.
It’s perfectly fine to start from scratch. Create a value for each product line or service—or whatever your unique vertical business segments happen to be—and work from there. It’s critical to remember that you’re not locked in to these figures, and that measuring your digital marketing ROI is a process that will evolve over time. A good, working framework is better than the perfect one that only exists in your mind.
There are three key measurements that we value most when it comes to measuring digital marketing ROI.
LCV is the net profit a business expects to receive from a customer in the future. On a base level, the formula for the prediction looks like this:
LVC = (Average Value of a Sale) x (Number of Repeat Transactions) x (Average Length of Customer Retention)
As an example, if your customer spends $30 a month, and you retain that customer for seven years, the resulting LCV would be $2520 (or $360 annually).
This one’s a little more obvious. CAC is the cost your company incurs to acquire a new customer within a certain timeframe. The simple equation is:
CAC = Total Marketing Campaign Costs (Related to Acquisition) ÷ Total Customers Acquired
As an example, let’s say you spent $750 on a digital campaign that yielded 375 new customers. Your CAC is $2 ($750 divided by 375).
This is a more modern measurement, one born directly from the Internet Age. CPL is a model that provides the amount of marketing dollars spent per customer conversion. This “conversion” is a lead that has indicated interest in your online offer.
CPL = Total Marketing Dollars Spent ÷ Number of Leads (Or, Conversion Rate)
As an example, if you spent $10,000 marketing dollars, and converted 250 leads, you’ve spent $40 per lead. These formulas can become far more complex; we have presented simple examples to provide a conceptual understanding of key ROI measurements. The online marketing map you follow will ultimately dictate the exact formulas you should use, since your overall strategy—and the micro-strategies you will employ on each online channel—will have variances that must be accounted for.
Now that you have more insight regarding what goes into measuring digital marketing ROI, it’s time to break it down a little further. While you have an overarching digital marketing ROI to concern yourself with, it’s important to segment it into two separate measurements:
A sound digital marketing strategy will focus on each individual channel. Whether it’s social, email, organic search, or pay-per-click (PPC), you need to be measuring each one individually.
This takes us even further down the ROI rabbit hole. If you’re going to measure independent channels, then it only makes sense to measure the independent campaigns you launch on those channels.
Why dig into these ROI layers? For one, it gives you an understanding of the math that leads to the overall ROI. But more importantly, it also gives good marketers exactly what they need: valuable intelligence. If you know what campaigns work best on which channels, then that will most certainly play into your digital marketing strategy going forward.
The small problem with ROI in marketing—be it digital or traditional—is that it will never reward the inpatient executive. Why? Because it’s a lagging indicator. Just based on the idea of measuring channel and campaign, you can start to see that a variety of numbers play into that one big number, and that it takes time to cull true data that can teach you something about your customers.
That patience your marketer is preaching? It isn’t a stall tactic. A classic mistake that business leaders make is shifting digital strategies too quickly. You have to practice patience so that you can measure accordingly. That’s what allows you to tweak your campaigns instead of making wholesale changes. The good news is you don’t necessarily have to twiddle your thumbs and wait forever for ROI to come in. Yes, ROI may be the tortoise, but there are some indicators that are more hare-like.
We’ve identified five leading indicators that allow you to gauge your digital marketing performance and that will serve as separate bellwethers to tell your overall ROI tale:
Each channel’s efficacy can be measured along the way—you don’t have to wait and see what the channel’s ultimate ROI says. For example, are your organic search numbers increasing? Are your paid advertising efforts delivering new leads?
These numbers tell you a variety of things. You’ll know which webpages your visitors are staying on, and which ones they aren’t. This informs you how effective your content is. Obviously, if your landing page has a high bounce rate, it needs testing to improve your campaign’s performance. You can also dig deeper to uncover traffic quality from referral sites, as well as advertising efforts.
This will tell you if you’re attracting the right audience and if your content offers are engaging enough. Site visits are always the goal, but the number that really matters is how many of those visitors become solid leads.
After identifying visitor-to-lead conversions, you can start determining how many of those leads are sales-qualified. Knowing the lead quality of your digital marketing channels allows you to utilize time and money effectively, all while filling up your pipeline.
Since we’ve discussed tracking how many visitors become leads, this final leading indicator shouldn’t come as a surprise. It’s critical to evaluate how well leads are moving through your system and becoming loyal customers.
We understand that even as we explain these indicators and concepts, it’s easy to feel overwhelmed. You’re probably asking yourself “Who has the time to measure all of this?” Well, that’s what automation is for.
Did you think we expected you to break out your calculator and measure all of this on your own? Of course not. That’s what marketing automation software, analytics dashboards, and customer relationship management (CRM) platforms are for. For example, we favor HubSpot’s automation software and its focus on closed-loop reporting. This useful tool allows sales to work with marketing to discover the best lead sources, tying every lead, customer – and ultimately – dollar back to the marketing initiative that created them.
Marketing software like HubSpot can also be linked to CRMs like Salesforce to create transparency between teams. Free tools like Google Analytics allow users to set up custom dashboards that make it easier to retrieve data. Technological tools like these allow marketing to maximize the sources that provide the greatest conversions. And higher conversions lead to a greater digital marketing ROI.
If measuring ROI indicators or integrating technology seems overwhelming, then a digital marketing agency might be a powerful ally. They can help you build a framework for measuring ROI, one that will ultimately create a closed-loop process that uses the best marketing automation for your business.
Most digital marketing agencies have deep experience measuring ROI—as well as those “number within the numbers” that help drive it—because that is what their accounts are measured on. They’ll help you set realistic goals, and they’ll typically bring the right tools to the table to create visibility around the key metrics that will drive you toward a higher ROI.
Aside from the numbers, most agencies also provide expertise for marketing, sales, and IT alignment. Many companies struggle with ROI simply from a standpoint of not having these teams on the same page, but reaching digital marketing goals is nearly impossible without integrating a holistic strategy that each team is willing to buy into wholeheartedly.
Digging in to understand a new company’s business and the nuances about what drives their customers’ behaviors definitely takes time. In our eyes there’s a decisive starting point: a preliminary diagnostic assessment.
Completing this assessment is one of the first things we do with our customers. This allows us to see what channels are currently in use, how effectively they’re performing, and if there are any glaring gaps. From there, we can set goals and start determining:
This logical starting point creates preliminary digital marketing objectives that begin at a high level but eventually spiral down the funnel to uncover exactly what’s driving the most customers to your website—and what they’re doing once they get there.
In closing, we’ll return to the important message where we began this guide: don’t stress over finding an exact starting point. Set a baseline to the best of your ability, and then tweak your process over time. While a company’s ROI inherently has its own set of variables, trying to gather every single aspect typically leads to doing nothing instead of something.
If you’re still daunted, it’s probably time to ask for help. Without that framework in place, you’re basically operating—at least digitally—in the dark. The right agency can shed light on your current ROI and illuminate the most effective ways to impact all of those smaller numbers, ensuring that you’re ultimately pleased with the big one.
We’re Knowmad, an Inbound Marketing Agency with a passion for advancing business online. We help clients build their own lead generation engines using inbound marketing to improve sales and marketing performance. Our customers across a wide range of industries, from manufacturing to technology to B2B services have experienced a 200-500% increase in online lead generation. We’d love to hear from you.
Can your business benefit from partnering with a digital marketing firm?
A no-cost, no-obligation digital marketing assessment will help you uncover areas of opportunity as well as potential pitfalls to avoid. In 30 minutes or less, a phone conversation with one of our online marketing experts will help you identify:
Find out how to enhance your SEO efforts with proven Strategy that produces results.