Understanding ROI in digital marketing

Setting clear goals and objectives

Setting clear goals and objectives is crucial when you develop your digital marketing strategy. What do you want to achieve with your marketing campaigns? Is your goal to raise brand awareness, gain social media followers, increase website traffic, generate leads, or make sales? 

Your goals will inform the types of digital marketing efforts you pursue, and will also inform the digital marketing metrics you need to track. Setting goals that are both achievable and challenging is key. Goals that are too easy may not provide enough motivation,, but goals that are impossible may end up discouraging you or your team. 

Defining key performance indicators (KPIs)

Key performance indicators (KPIs) are a popular way to measure success in specific areas of the business. Examples of digital marketing KPIs include:

• Website traffic: Increase website page views by 10% next quarter.
• Click-through rate (CTR): Get 4% of people who see a social media ad campaign to click through to a landing page. 
• Conversion rate: Get 3% of people who see an ad campaign to buy the product. 
• Email sign ups: Increase email signups by 5% the next month. 

KPIs should always be measurable. Vague goals like “increase website traffic” aren’t measurable. 

Tracking and analyzing metrics

You’ll need to put tools into place to track and analyze your digital marketing efforts. These can include free and paid tools.

If you engage in paid advertising, like Facebook Ads or Google Ads, you’ll have access to robust tracking tools that can help you analyze the success of your campaigns. You can get a lot of value from free tools, but as your business grows you may want to invest in more sophisticated tracking. 

Website traffic and conversion rates

Google Analytics (GA) is by far the most popular tool for tracking and measuring web traffic, conversions and more. Google is still the most popular search engine and you can get a lot of information when you link GA to your website. Important metrics include:

• Website Traffic: How many website visitors are you getting each day, week, or month? What percentage are new visitors and what percentage are returning visitors? Traffic metrics allow you to track trends such as an increase or decrease in the number of visits over time, seasonally, or in response to a specific digital marketing campaign. 
• Traffic Sources: Where are visitors coming from? Free traffic like organic search?, Direct visits (because they typed in the name of your site)? Referral links from other sites? Social media marketing? Paid advertising campaigns? Each of these sources of traffic can be valuable, and as you analyze this data you may identify your most valuable sources of traffic. 
• User Demographics: Who are your visitors? GA can provide insights into visitor demographics such as where they are located, their age, and gender. If your website isn’t attracting your target audience, why not? 
• Page Views: Evaluating the total number of pages viewed on your website, as well as individual page views can help you understand what’s most popular with your audience. 
• Conversion Rate: What are visitors doing once they visit your site? Track conversion rates for important metrics like signing up for an email newsletter, filling out a form to learn more about your products or services, or making a purchase. 
• Average Session Duration: What’s the average time that visitors stay on your website? The longer they stay the more they are engaging with your content. (Think of it as a customer browsing longer in a retail store.) 
• Bounce Rate: How often do visitors leave your website after viewing just one page? (That’s referred to as “bounce.”) A high bounce rate may mean visitors aren’t finding a reason to stay, or have experienced some kind of problem.
• Exit Pages: Where are visitors leaving your site? If certain pages have high exit rates, you may want to see how you can improve engagement.  
• Click-Through Rate (CTR): What percentage of visitors are clicking on call-to-action links such as an email sign up or ads? 
• Device and Browser Information: Which devices do your visitors use when they visit your site (desktop, mobile, tablets, for example)? Which browsers do they use? You want to make sure your site is optimized for each type of device. 
• Site Speed: How quickly are your pages loading? Slow page speed can cause high bounce rates, and lead to a bad user experience. 

All of this information can help you measure the success of your digital marketing efforts and may lead to ideas for new campaigns. If you have an increase in traffic to a specific page, you may want to amplify it with paid ads and a social media campaign, for example. 

Conversely, if you promote a landing page on social or with paid ads, GA can help you measure the effectiveness of that campaign. 

Social media engagement and reach

Whether you rely on organic or paid social media marketing, it will take time and effort. If you set up a business account on any of the social media platforms, you’ll get access to data you can use to help track what’s working and what’s not. 

Some popular metrics for measuring social media performance include:

• Follower Count: What is the number of people who follow your account? This is one of the most basic measurements but it’s sometimes referred to as a vanity metric. Some platforms have a lot of bots, or followers may lose interest. Still, most digital marketers like to see rising numbers of followers.  
• Impressions: How many times is your content appearing in user’s feeds? This can be helpful for understanding visibility, though it doesn’t always translate to results.
• Reach: How many unique users have seen your social media posts or content? This metric tells you the number of people your content has reached, excluding repeat views.
• Likes, Comments, and Shares: How many people are engaging with your content through likes, shares or comments? Again, these don’t always translate to tangible business results, but they can help you understand what type of content is most engaging for your audience. 
• Engagement Rate: What percentage of people interact with your content, including likes, shares, comments or clicks? Businesses that use influencer marketing often want to work with individuals or brands with good engagement rates.
• Mentions and Tags: What is the number of times your social media handles have been mentioned or tagged by others on the platform? This type of social sharing can be valuable for amplifying your brand. 
• Click-through Rate (CTR): What percentage of people are clicking on links on your social media posts? Low CTRs mean there is room for improvement. 
• Hashtag Performance: How are hashtags you’re promoting performing? If you use a unique hashtag for a campaign, or to identify user-generated content, this will help you understand how those efforts are working. 
• Referral Traffic: As mentioned earlier, how many people are coming to your site from social media platforms, and from which ones? 

Again, each of these metrics can provide insights on their own, but when you put them together with your efforts on other marketing activities, you may hit on a successful formula. If not, keep experimenting. 

Email marketing performance

Email marketing remains a powerful way for online and ecommerce businesses to stay in touch with customers, and to get them to take action. Here are the most common metrics used to measure email marketing performance. 

• Open rate: What percentage of people who received your email opened it? A great subject line and relevant content can increase this metric. 
• Click-through rate: How many recipients click on a link (call to action or CTA) in your email? Marketers who find relevant and engaging topics and who create strong and clear CTAs are likely to see higher CTRs. 
• Conversion rate: How many people took the action you were hoping? This could be anything from signing up for more information to downloading something you were offering. High conversion rates are the goal. 
• Bounce rate: How many emails were not deliverable? A high bounce rate isn’t good; either people are no longer using those email addresses or emails are going to spam. 
• Spam complaint rate: How many of your emails are getting marked as spam? This metric can create a cascade of problems as other emails can get marked this way as well. 
• List growth rate: How many new subscribers are you getting? If you’re growing your list that means your lead generation efforts are paying off. 
• Overall email marketing ROI: How much money are your email campaigns bringing in? (Here you measure revenue minus costs.) Marketers aim for a high ROI but even if it’s modest, you may find your email marketing helps boost other marketing channels.

Paid advertising metrics

When you put money directly into paid ads, you’ll want to calculate marketing ROI for those efforts. There are several metrics used when evaluating paid marketing:

• Ad Frequency: How many times has an individual seen your ad? Showing the same ad too often can lead to what’s often referred to as “ad fatigue” or “ad blindness.” 
• Clicks: How many people clicked on your ad?
• Click-through rate (CTR): What percentage of users who saw your ad clicked on it? 
• Conversion rate: What percentage of users took the action you were trying to get them to take? This could include purchasing or signing up for something you offered. 
• Cost per click (CPC): How much did you pay each time someone clicked on your ad? Pay per click or PPC advertising is common, though not the only way advertisers charge. 
• Cost per acquisition (CPA): How much did you spend, on average, to acquire a new customer? 
• Engagement Metrics: Depending on the platform and type of ads you are running you may want to track metrics such as time on page, social media engagement or more. 
• Impressions: How many people saw your ad? 
• Return on Ad Spend (ROAS): How profitable are your paid advertising efforts? ROAS is a key metric for calculating marketing ROI. Here you can calculate how much revenue you earned for each dollar you spent on ads. 

Use a business credit card with rewards to pay for your digital advertising. Pay the bill off in full to avoid interest. Need to invest in a new marketing campaign? A 0% intro APR credit card can help you finance that cost inexpensively over time. 

Using marketing analytics tools

Marketing analytics tools make it easier than ever to monitor your success. And many of them are free.

Google Analytics

Google analytics is easy and free to install on your website. Follow the instructions here. 

Social media analytics

Each social media platform allows you to set up a free business account to track analytics. Learn how to set up:

• LinkedIn page analytics here. 
• Pinterest analytics here. 
• Facebook and Instagram (Meta Business Suite) here.
• TikTok analytics here. 
• YouTube analytics options here. 

CRM Systems and marketing automation

Customer relationship management (CRM) software and marketing automation programs can make this job much easier. While some of these programs may offer a free trial, there will be a cost that will affect your ROI, so take that into account when deciding which ones are best for your business. (Not ready to spend the money? Take advantage of free tools like Google Analytics and tracking metrics built into ad managers.) 

Popular CRM and marketing automation software includes:

• Hubspot
• Keap
• SalesForce
• Tealium
• Zendesk
• Zoho

Conducting A/B testing and experiments

With the constant changes taking place within and outside your business, it can be challenging to determine if your marketing efforts are truly driving sales, leads, and other desired outcomes. 

To gain a better understanding of the impact of a specific marketing campaign, companies often turn to A/B split testing. Through A/B split testing, companies can experiment with different versions of elements such as a call-to-action button. Half of the audience is exposed to version A, while the other half sees version B. Comparing the results of each version is a great way to optimize ads for the best results. 

With A/B testing it’s important to test just one different element each time. Otherwise, you’ll be uncertain which one is leading to better or worse performance. 

Measuring customer lifetime value (CLV)

Customer lifetime value measures how much a customer brings into your business over the time they are a customer. This is important in relation to other metrics such as customer acquisition cost. 

This is hard for new businesses to measure since they don’t have experience with the customer over the long term. It will also be impossible to measure if you aren’t collecting data about repeat purchases. 

There are several formulas for measuring CLTV. Research firm Gartner offers this formula:

Number of purchases annually x purchase profitability x length of commercial value = CLTV.

Attribution modeling

If you’re like most small businesses, you’ll use different marketing channels. Your customers may interact with these various channels along the buyer journey. Attribution modeling helps marketers understand the value of different marketing channels and touchpoints by assigning credit to each channel or touchpoint for a conversion, based on a set of rules or algorithms.

First-touch attribution

Here you give all the credit to the first interaction your customer had with your brand (for example, an ad, or an email newsletter.) 

Last-touch attribution

Here all the credit goes to the last interaction the customer had with your marketing before they converted (i.e. made a purchase). 

Multi-touch attribution

This more sophisticated approach gives credit to each touchpoint along the customer journey. 

Aligning marketing efforts with business goals

As mentioned earlier, you design your marketing efforts with your business goals in mind. You need clear and measurable goals and objectives in order to create marketing campaigns that achieve those goals. 

While most small businesses first choose to focus on increasing sales, other goals may be useful too, such as increasing brand awareness and trust, or reducing customer attrition. 

Benchmarking and competitive analysis

You’ll want to monitor your own progress toward your goals, but you may also want to understand how your results compare to competitors in your space. It can be challenging to find that kind of information as your competitors aren’t likely to make their data public. However, there are companies that sell tools to help with your benchmarking and competitive analysis research. One tool isn’t likely to tell you everything you need to know; you’ll probably need to piece it together from various sources. 

GoConvert is one of the better sources today for understanding industry benchmarks for marketing ROI. You’ll find case studies for industries such as financial services, travel and tourism, and technology. They also offer a Google Chrome extension that allows you to compare common metrics from your business (such as CTR, CPM, CPC, and ROI) to benchmark data they collect. 

Another resource for those with larger budgets is the Gartner Digital Performance Benchmarks which help rank digital marketing  performance across industry and dimension. Gartner uses its proprietary methodology, Digital IQ Index.

Wordstream by LocalIQ offers data on search advertising benchmarks in its 2022 Microsoft and Google Ads benchmarks.

Ad managers also often build in industry benchmark information to help you understand how your ads perform compared to others in your industry. 

Optimizing and fine-tuning strategies

Digital marketing involves a constant effort to improve, even if just in small increments. You’ll need to evaluate  performance against your business goals, often on a monthly or quarterly basis. Use data to help you optimize your marketing strategies and fine-tune them as the marketing (and marketing platforms) change. 

Evaluating return on investment (ROI)

If you want to evaluate your digital marketing ROI, you’ll need to start with relevant metrics and compare them before and after you launch each campaign. Choose from the most relevant metrics and compare them over time. While you don’t want to waste money, you also need to think long-term. Tracking over time will give you a clearer picture of trends. 

Calculating ROI

There are several ways to calculate ROI for your digital marketing efforts. Harvard Business Review offers the following formula for calculating marketing ROI:

Incremental financial gain as the result of the marketing investment minus cost of the marketing investment divided by the cost of the marketing investment. 

However, there are other formulas that may be useful. For example, Hubspot offers a useful marketing ROAS calculator. 

Improving marketing ROI

Once you have calculated your marketing ROI, the next goal will be to improve it. Take a step back and see where your audience is and what they want. A quick survey to your audience about what social media and other marketing platforms they use can be a great way to quickly dial in on where your efforts may be best spent. 

You can also reevaluate your content marketing efforts. Take a look at top performers in your space and try to understand what they are doing that resonates. Use A/B testing to test your new ideas. 

And dial in your marketing spend. It’s OK to let go of underperforming campaigns or channels no matter how much you think they will perform. 

Enhancing conversion rates

There are lots of ways to improve conversion rates; again, you’re going to have to experiment and try A/B testing. But here are a few of the most popular places to take the first stab:

1. Optimize landing pages. When customers get to your website, is it easy to navigate? Mobile-responsive? And do you make a clear and compelling call to action? What’s the one thing you want your customer to do on this page and is that clear to them?
2. Improve your offer. Are you offering something your audience really wants? Are you giving them a reason to act right now instead of thinking about it? 
3. Add trust. Are you using customer testimonials, social proof, security badges or other tools to help your customers feel safe giving you their personal information—whether that’s a credit card number or an email address?

Reducing customer acquisition costs

Reduce the cost of acquiring a customer and you’ll improve your ROI and bottom line. Some ideas:

• Add a referral program. Do you make it easy and rewarding for your customers to refer others? Customers may prove to be your best marketers. 
• Do what works. Are you focusing on the marketing channels and activities that contribute most to raising your ROI? You may need to cut less profitable marketing activities, or at least reduce how much you spend there. 
• Refine your target market. Really hone in on who your best customers are, and how best to reach them. The metrics mentioned throughout this article can help you make data-driven decisions. 

Increasing customer retention rates

The longer a customer stays with you, the more opportunity you have to increase the customer lifetime value mentioned earlier. Consider these tactics:

• Offer excellent service. If your customer has a problem, do you respond quickly? How you handle customer complaints can affect whether they stay or leave unhappy (and perhaps tell others).
• Implement a loyalty program. Do you incentivize customers to buy more from you? A loyalty program can keep them coming back and buying more.
• Ask for customer feedback. Are you asking your customers about their experience with your brand or products? Find out what they want and don’t want, looking for patterns in responses that can suggest improvements. 

Conclusion

Implementing and using data to make better decisions in digital marketing can increase your ROI and make your marketing dollars go further. Ultimately, it can lead to strong revenues which in turn can help you grow your business. 

Frequently asked questions on measuring digital marketing ROI

How often should I measure and evaluate my marketing ROI?

It is essential to consistently monitor and evaluate your marketing return on investment (ROI) throughout the marketing process. Doing so enables you to assess costs, explore new marketing opportunities, and identify areas where spending may be concentrated, thus allowing for potential cost-saving measures. However, it is crucial to understand that ROI is just one aspect of the equation, and many marketing campaigns require time to gain traction. Therefore, before prematurely discontinuing a marketing campaign solely based on negative ROI results, it is important to assess whether you have given it a fair chance to succeed.

How long does it take to see a positive ROI from marketing efforts?

Again, unless you get really lucky with a viral ad or an influencer who raves about your product, it will likely take time to achieve a positive return on investment (ROI) from your marketing efforts. Factors that can affect this timeline include: 

1. Brand recognition. Unless your product is really unique and takes off quickly (say with a crowdfunding campaign), it will often take longer for a new business or product to realize a positive ROI when compared to an established brand with an existing following. 
2. Experience with advertising. If you’re new to digital marketing, it will take longer to learn which types of campaigns and content resonate with your target audience across different platforms. The more useful data you have from prior advertising, the faster you’re likely to experience positive ROI on new campaigns. 
3. Type of marketing efforts. You can quickly get feedback and data from efforts like paid ads on social media or Google ads. Moving up search engine rankings through search engine optimization (SEO) by creating popular content takes longer, for example.

How can I optimize my marketing ROI with a limited budget?

There may be a number of ways to optimize your marketing ROI with a limited budget. First is to review your goals and make sure they are crystal clear, and measurable. 

Review your target audience and make sure you are focusing on the most profitable and easiest to reach segments of your audience. Go where they are: if they are on TikTok, then marketing on Twitter or LinkedIn may be a waste of time and effort.

And as we’ve mentioned, make sure you are using data to your advantage. If you don’t feel comfortable digging into the data, it may make sense to hire a pro.