Short for return on investment, ROI is a mathematical formula you can use to evaluate your investments and determine how they perform—whether or not your efforts are actually helping your business improve its bottom line. By calculating your ROI, you gain insights you can use to drive future strategies for smarter and data-driven decision-making.
ROI in digital marketing is essentially the same. It is a valuable business metric that allows you to measure how your marketing efforts contribute to revenue growth. You can use it to justify your marketing spending and budget allocation for future campaign initiatives. After all, what is the point of your costly marketing endeavors if they are not generating sales?
In this Guide:
- Why You Should Measure Your Digital Marketing ROI?
- How to Measure Digital Marketing ROI
- How Much Revenue Does Digital Marketing Really Generate?
- What is a Good Digital Marketing ROI?
- How to Improve Your ROI
Why You Should Measure Your Digital Marketing ROI?
In a nutshell, ROI is a KPI that describes how much money you invested and how much profit you made from that investment. At an organizational level, measuring your ROI can guide your business decisions and optimize your marketing efforts—determine which marketing channels deserve more budget and which are fine with less.
Justify marketing spend
The global digital advertising and marketing spend was estimated at $350 billion in 2020 and is forecasted to reach $786.2 billion by 2026. But, while allocating resources to marketing is a priority, marketers must justify their spending at the executive level to secure a budget for future campaigns. They have to accurately measure the ROI their campaigns can deliver so the budget can be distributed properly.
Measure campaign success and establish KPIs
As marketers would say, if you are not measuring, you are not advertising. Calculating your ROI allows you to measure campaign success and set baselines you can refer to for future efforts. By understanding the results of your campaigns—both on an individual level and in their entirety—you can better identify the right mix of strategies and adjust your efforts to maximize potential.
Tracking your ROI allows you to understand how you are performing within the industry and against your competitors. Partnering with a digital marketing expert in the Philippines often gives you access to insights such as the estimated ROI of your competitors. With this information, you can adjust your strategy to drive better results and ultimately stay competitive.
How to Measure Digital Marketing ROI
While there are many ways to calculate ROI, the basic formula—assuming that all sales growth is attributed to your marketing efforts—is quite straightforward. You simply have to compare your profit from the campaign to how much it cost. Ideally, you want as high an ROI as possible.
ROI = [ (Gross Income-Marketing Cost) / Marketing Cost ] x 100
So, if sales increase by $1,000 and your marketing cost you $100, then your ROI is 900%.
ROI = [ ($1000-$100) / $100 ] = 900%
The Challenges in Calculating Digital Marketing ROI
As said above, however, this formula is basic. Because digital marketing is a wide category that encompasses an even wider range of channels and strategies, calculating your marketing ROI isn’t always as easy as looking at the difference between the sales your campaigns bring in and the cost to run them. Not all campaigns have an end goal of conversion—some are meant to build awareness while others try to get leads. It means what you have to measure as an ROI depends on your objective.
The good news? There is much data in Google Analytics to quantify your success in digital marketing. It offers various metrics to monitor different KPIs such as traffic, referral sources, leads, conversions, and more.
Most Common KPIs to Measure ROI
Unique Monthly Visitors – This lets you know how many users clicked through your site within a month. You can further segment the data by traffic sources e.g. organic, paid, or social.
Conversion Rate – It calculates how much it costs to get each lead. It is measured by dividing the number of conversions by the total number of ad interactions.
Number of Conversions / Ad Interactions = Conversion Rate
50 Conversions / 1,000 Interactions = 5%
- Cost Per Lead – CPL measures how cost-effective your campaigns are in generating new leads. To calculate, divide your marketing spend by the total number of new leads.
- Cost Per Acquisition – CPA is calculated the same way as CPL. But, instead of leads, this metric applies to users further down the funnel.
- Average Order Value – AOV tracks the average amount a customer spends each time they place an order. To get the AOV, divide your total revenue by the number of orders.
- Customer Lifetime Value – CLV is the total worth of a customer to the business throughout their relationship.
- Average Position – This refers to your ranking in search results for your targeted keywords. Where you appear in SERPs can greatly affect how much traffic your site receives.
How Much Revenue Does Digital Marketing Really Generate?
Businesses spending an average of more than 21% of their marketing budget on digital advertising is a key indicator of digital marketing’s effectiveness in generating revenue. Numbers show that global digital revenues reached $366 billion in 2021 and are projected to increase to $488 billion by 2025.
ROI on SEO
In most areas of your digital marketing, it’s easy to see your revenue streams—you know which campaigns get the most sales. But, seeing how SEO contributes to your revenue isn’t as easy. All too often, measuring the results of SEO stops at tracking KPIs like rankings and site traffic, but there’s more to SEO than that.
You can measure sales generated through the conversion of organic leads. It would also be ideal to consider your CPA as a variable to better calculate your SEO ROI. Organic leads are almost always cheaper than the leads generated from pay-per-click and other paid campaigns.
Here is the formula to calculate your SEO ROI:
[ Total Revenue – Total SEO Cost ] / Total SEO Cost = ROI x 100 = %
What is a Good SEO ROI?
What that means is that if you spent $1,000 on SEO and it generated $3,500 in revenue or $3,500 worth of leads, your ROI would be 250%.
[ $3,500 – $1,000 ] / $1,000 = 2.5 x 100 = 250%
However, in reality, the average ROI from SEO is $2.75 per $1 investment. It means that for every $1 spent, a business generates $3.75, which is a 275% ROI.
ROI on Content Marketing
In content marketing, ROI is measured based on how much you spent to produce the content, the cost to distribute it, and the amount of what you got in return. These should include any costs that are directly relevant to the investment including manpower, software and equipment, and promotion to your costs. Select the KPI you would like to analyze, which for most businesses is sales revenue.
[ Total Revenue – Content Marketing Cost ] Content Marketing Cost = ROI x 100 = %
But, to get a more accurate picture of your content marketing ROI, you should also look into other key metrics like traffic, bounce rate, and shares. When users are engaging with your content, that means they find it valuable. They are more likely to share it on their social networks, which in return can help you build your reputation, drive more traffic, bring in leads, and ultimately generate sales.
What is a Good Content Marketing ROI?
A good content marketing ROI is relative to the costs and margins of your industry. However, a 5:1 ratio is considered strong for most businesses. A 2:1 ratio may not be profitable and any return less than the cost of your investment is operating at a loss.
ROI on Social Media
ROI in social media can also be measured by monetary value—the amount of what you generate in your marketing investments. The basic formula for calculating your social media ROI appears as follows:
[ Total Profit – Total Social Media Cost ] = Social Media ROI %
But, again, your overall social media marketing efforts are not exclusively tied to how much value they are returning. This is particularly true with your organic social media campaigns. Depending on your objectives, you can also quantify your social media ROI by non-monetary metrics such as an increase in brand awareness and influence, specifically, growth in follower count, impressions, and reach.
What is a Good Social Media ROI?
Over 93% of businesses today are using social media for marketing and the number is consistently growing. Even small businesses are building their social media presence to advertise, increase brand awareness, and boost overall engagement. This further proves that in today’s digital age, social media is something marketers cannot afford to ignore.
As a general rule, you should aim for a social media ROI of at least 3:1. It means for every $1 you spend on advertising, you should earn at least $3 in revenue. It may seem like a high bar to reach, but keep in mind that social media is a powerful, cost-effective tool to achieve most of your marketing objectives such as increasing brand awareness, establishing brand authority, and ultimately driving conversion and sales.
What is a Good Digital Marketing ROI?
As suggested above, there’s no single answer to what constitutes a good digital marketing ROI. But, a 5:1 ratio is a good ballpark figure, which should be high enough to cover overhead costs and bring in revenue. What is certain is that you need to do better than a 2:1 ratio to be profitable.
Then again, there will also be cases when a lower ROI is good as long as it accomplishes a different goal—driving traffic or generating leads, for example. Your marketing efforts may not generate any direct ROI now, but the leads they generate can still later turn into a profit, therefore still sustaining the business.
How to Improve Your ROI
The first step to increasing your ROI is to set specific goals. Before you start any marketing campaign, you must first understand what it needs to generate to be successful.
A good set of digital marketing objectives should cover a range of different measures to set, monitor, and control your performance across all your online activities. It should also be customized to each aspect of your marketing efforts—your PPC campaigns should not have the same goals as your SEO activities.
You can then further break down each component of your marketing campaign into more specific details. As said above, you can look into metrics like lead generation, conversion rate, and conversion values. This way, you can see which marketing component drives the most leads, generate the most sales, and how much customers spend on average. When done right, it can help you funnel your marketing spending into channels that bring in the most ROI.
Ultimately, you would also want to partner with the best digital marketing expert in the Philippines to get access to high-level analytics and reporting. They can provide you with an accurate, detailed breakdown of your spending and returns, as well as predictive modeling to help you better manage your spending and make the most out of your marketing investments.
In digital marketing, you can’t improve what you don’t measure. With the right tracking mechanisms in place and the right digital marketing partner to provide you with better insight for measuring results, you can easily determine whether your campaigns are successful or not.
Marketing is about raising awareness, establishing authority, and generating revenue. Understanding ROI and using it as the golden metric for your marketing activities will help you focus on the ultimate outcome: growing your business.