Digital Marketing ROI: What It Is and How to Calculate It

Digital marketing refers to the strategies and techniques companies use to connect with potential clients through the Internet or other digital methods of communication. Digital marketing campaigns can be carried out through social media marketing, email marketing, or other forms of web-based advertising. It can also be with multimedia messages or text messages.

What’s great is that businesses today can count on numerous third-party software for their digital marketing campaigns. Podium offers the best digital marketing solutions for your company. Through Podium’s features for lead generation and marketing, you can increase ROI and overall revenue.

Whether you are looking to get more leads or need help with your sales pitch, Podium has tools to give you a head start. Podium Lead Drive, for instance, makes it possible to have all your leads from many different sources organized into one place. Regardless of whether your leads come from Cargurus, Thumbtack, or Angie’s, you can put them all in one convenient inbox so sales reps can respond promptly.

What Is ROI in Digital Marketing?

Digital marketing can involve many different strategies, including email marketing, content marketing, SMS marketing, and even search engine optimization or SEO. When it comes to digital marketing, ROI or return on investment determines whether you are reaching your potential audience through your marketing efforts. ROI measures if your efforts are worth the time you are putting into them.

You need to consider the right metrics to gather your data for interpretation regarding your ROI and your marketing efforts. You need to measure KPIs that can provide a real picture of the money and time that you put into your digital marketing efforts. These can give you a better idea of how your digital marketing campaigns affect your bottom line.

To get the best understanding of how different aspects of your digital marketing campaign are impacting your business, you will need to be clear about what you are measuring.  This means getting the most out of your marketing expenditures.

Measuring your digital marketing ROI against benchmarks is important because it allows you to see where there is room for improvement and where you’re succeeding.

Why Measure ROI in Digital Marketing

There are many key reasons to measure your ROI when it comes to your digital marketing efforts. It can be easy to think, “Why measure your digital marketing?” But even if you do all your marketing, it still costs time and money. If you don’t track your ROI, you won’t know if you are wasting your time or not with certain channels.

The following are just a few reasons to use precise metrics to measure your ROI with online advertising and other digital marketing strategies.

Maximizing Your Marketing Budget

One important reason to track the performance of digital marketing strategies is to manage your marketing budget. When you know which areas of your digital marketing aren’t working, you can reallocate your efforts to the aspects that are working or to trying new areas of digital advertising.

This allows you to be smart and phase out advertisements that aren’t working and put your resources into the marketing efforts that are working.

Goal Achievement

Measuring the tangible effects of your digital marketing campaigns also allows you to see how far you’ve come toward achieving your business goals. You may have set a goal to increase brand awareness across all marketing channels, but you won’t know how you are doing if you don’t measure track metrics like comment count or follower count over time.

Checking in on your marketing activities regularly and working on your ROI formula will help you see where you are with your goals. Whether you are working to increase your number of leads and, therefore, potential customers through optimization or you want to reduce your overall marketing spend, you can’t know how you’re doing if you don’t measure it.

Performance Evaluation

Understanding whether your digital marketing campaign is working sometimes requires you to refine your ROI formula. You should set a goal ROI at the beginning of any campaign, then see how your marketing efforts measure up. It’s difficult or even impossible to evaluate the campaign’s performance without measuring it.

For instance, to see if your content marketing is bringing new traffic to your landing page, you need to check data such as traffic, referrers, and click-through rates.

Continuous Improvement

Measuring your ROI on your digital marketing activities will let you know if you are doing well or falling behind on the goals you have set. You don’t want to waste time pouring money into a marketing investment if it isn’t working. This means you need to check on your ROI regularly so you can identify areas for improvement.

With continuous improvement, you’ll eventually hit the perfect combination of digital marketing strategies and set your business on the path to growth.

How to Measure Digital Marketing ROI? 6 Marketing ROI Metrics

To get a good idea of what is going on with your digital marketing ROI, you need to identify the metrics that best match your marketing goals. These metrics can be anything from cost per lead to costs associated with converting that lead.

In short, digital marketing ROI measures the profit earned from each dollar of your marketing spend. Here are some of the most measured metrics businesses use to check their digital marketing ROI.

1. Customer Acquisition Cost (CAC)

The customer acquisition cost or cost per acquisition is what it takes, on average, to get a new client. For the cost of acquisition, divide your marketing cost total by your sales from the marketing campaign total.

Your customer acquisition cost helps you better understand your ROI. If you spend more to get a new customer than what they bring to your company, you are getting a negative ROI. If this is the case, you should revisit your marketing campaign and find out how to lower your CAC.

2. Conversion Rate

One of the most popular metrics that is used to track digital marketing ROI is your conversion rate. If your priority is to convert more leads into customers, then this is the metric to measure. There are different ways to calculate conversion rates, but a common formula is to divide the total number of conversions by the total number of leads or visitors and then multiply the result by 100.

For this metric, it isn’t all about the lead source, but if the lead closes. This will tell you how well your lead conversion efforts are doing and where your resources should be allocated for a better return on your investment.

There are a few things to look for when it comes to conversion rates. Understanding how your lead generation process works is important for this metric. You will need to know which marketing channels your traffic is coming from and which of these are converting traffic to clients. When you find one is doing better than another, invest more time in this channel for a better ROI. Likewise, when one channel is doing poorly, move your focus elsewhere.

It is important to measure the conversion rate by device as well. Some devices will have high traffic but poor conversion. When this is the case, you should reevaluate your marketing strategy.

3. Customer Lifetime Value (CLV or LTV)

Another important measurement to pay attention to is customer lifetime value or CLV. This is a metric that will tell you what the average customer will spend over their lifetime. This metric will allow you to better understand the ROI of your digital marketing campaigns.

A common formula to get a customer’s lifetime value is to multiply the average transaction value by the number of transactions within a set period and the number of years the customer stays active.

This becomes important when you see it costs $100 to get a new client and they spend $100 on their first purchase. This means you don’t have a good ROI, right?  Well, if that same customer spends $100 every month from here on out, the initial investment is excellent. It is best to take a step back and get a bigger picture for a full understanding of how your marketing activities are doing.

Look at what you can gain in the long-term profit margin, and you get a fresh perspective on your ROI. The idea here is to see past that initial purchase to get a more accurate idea of your overall ROI.

4. Cost Per Lead

You should aim to get new leads that your sales team can follow up with. You want to measure what you pay for each lead that comes in. This will determine which campaigns you want to continue and which campaigns you should drop.

The formula for cost per lead is your total amount spent on the ad divided by the number of leads that came from this ad.  If your cost per lead outweighs what you get when you close the sale, you don’t have a positive ROI.

5. Lead Close Rate

Sometimes called lead-to-close ratio, this is the sales metric measuring the amount of leads you have against the sales made. A close rate is the percentage of sales attempts that end with money exchanged or closing the lead. This is an important metric because it tells you how well your sales team manages to close their leads.

If you have a problem here, it needs to be addressed right away. All your hard work in getting new potential leads will be useless if your sales reps can’t properly follow through and close deals.

6. Average Order Value (AOV)

This is the amount an average customer spends when making a purchase. You can calculate for this figure by dividing the total revenue by the number of orders received.

AOV, or average order value, is an important number because you may get a bunch of conversions, but they aren’t spending tons, so your ROI won’t grow much. Likewise, upselling your clients will help grow your ROI and make your efforts more profitable. However, if you turn your focus toward upselling clients, you may see a dip in your conversion rates.

What Is a Good Digital Marketing ROI?

One of the more common ways of ROI calculation is dividing your net profit by your total marketing costs online and then multiplying that by 100. For net profit, subtract your costs from your revenue.

With this formula, if you invest $1,000 and earn $10,000, you calculate like this:

(($10,000 – $1,000) / $1,000) x 100 = 900%

As a rule, a good marketing ROI is 5:1, which means you’re earning $5 for every dollar you spend. If your business is highly profitable, you may see an ROI of 10:1. If your ROI is less than 2:1, you may need to reconsider your marketing strategies to make them more effective.

With your ROI, you will need to consider the type of strategy you are using. Is there social media marketing involved? What other marketing plans do you have? Getting these ideas and strategies organized will help you measure what you are doing with your digital marketing.

How to Improve Your Digital Marketing ROI? 4 Tips

Once you have a good idea of what you are doing with your marketing plan, you will see areas for improvement. Google Analytics can help you with part of your plan, but you need more than that. Here are a few tips to help you improve your digital marketing ROI.

1. Centralize your communication channels.

It can take a lot of time to check several email inboxes, social media accounts, voicemail, and other communication channels. Therefore, it is important to get these methods of communication centralized. Make sure your communication channels all come to one location or a single inbox. This makes it easier for your sales reps and marketing teams to respond to leads and resolve customer concerns.

2. Streamline lead capture and management processes.

Getting tons of leads is one thing, organizing them and making use of them is another. Podium and Lead Drive features offer an easy solution to keeping all your leads organized and functional. Aside from collecting all lead inquiries in one inbox, Lead Drive also automatically triggers a text to each lead, keeping them engaged.

3. Leverage marketing automation tools.

Many tools can help you work smart. You can take advantage of AI tools that automatically check website traffic, open rates on emails, and client retention. Data gathering can be done automatically, giving you an idea of how you’re shaping up against KPIs.

4. Test and adjust your campaign.

The best way to understand if your marketing campaign is working is to test it. It’s a good idea to use a variety of tests while experimenting with new visuals, copy, and launch times. The results will help you narrow down what target audiences respond best to.

Aside from improving current campaigns, testing will also help you figure out the best mix of elements for your future marketing efforts.

Increase your Marketing ROI with Podium

Get faster results in boosting your marketing ROI with Podium, especially its AI assistant and lead generation tools.  Podium has helped small businesses see a 2.5% close rate with just their first text promotion. Another small business put $20,000 in their account over two days from just one ad campaign powered by Podium’s tools. One Podium client saw a 128% increase in revenue from a text messaging campaign.

You don’t have to face growing your business alone. Podium is here to help you. Whether you are working toward getting more page views, boosting click-through rates, improving your email campaigns, or reducing your bounce rate, Podium has the tools to help you.