With rapid and frequent technological advancement, changes in algorithms, and shifts in consumers’ preferences, it is more important than ever to cherry-pick your digital marketing agency investments. From the popularity of influencer collaborations to the rise of artificial intelligence, the scope of digital marketing has expanded by leaps and bounds in the last decade.
To ensure your efforts align with the latest trends and you are getting the most value for the money paid to your marketing agency, it is crucial to track your ROI, short for ‘Return on Investment’. In this article, we will explain how to calculate the ROI of digital marketing, the primary markers of measurement, and how to further improve their performance in 2023.
How to Calculate the ROI of Digital Marketing?
In simple terms, the ROI of digital marketing is the campaign-driven profit earned or loss suffered compared to the investment made into the effort.
The formula for the same would look like this:
ROI = (Return/Profit – Initial Investment/Initial Investment) x 100
[Note: ROI is always calculated as a percent.]
If the percentage is positive, your digital marketing campaign has yielded a profit, and vice versa. While this calculation will almost never be accurate to the dollar, it will still give you a ballpark figure to understand whether your campaign was broadly a success or a failure.
What is a Good Digital Marketing ROI?
A ratio of 5:1 is considered a good ROI by many industry experts. Anything more than that is a marker of excellent to outstanding return on your digital marketing efforts. But anything less that needs to be taken as a wake-up call.
A ratio of 3:1 or 4:1 is acceptable but there is scope to do better. An ROI of 2:1 is concerning, as the profit made would be eclipsed by the other business expenses and the ratio would reduce to break-even.
However, the benchmark is not always a concrete yardstick. Its efficacy is largely dependent on the industry and target audience. Some markets are more saturated and heavily encroached, in which case a bigger budget could reap long-term benefits and add value to the overall branding. These concepts can be abstract and will not show up in the ROI metric immediately.
8 Ways to Measure ROI in 2023
To get a better idea of the benefits reaped by digital marketing, you need to get into more nuanced ROI measurements.
1) Website Analytics
These online tools offer the easiest means of monitoring your website traffic. They also collect more complex data that help in measuring the ROI of digital marketing, such as dwell time and conversion rate. You will also get an idea of the features of your website that customers interact the most with.
2) URL Tracking
Get your digital marketing agency to create unique URLs to measure different components of your campaign. You can do it by Urchin Tracking Model (UTM) code, Vanity URL, or 301 redirect. With this, you will know which aspects of the campaign are working the best when it comes to sending visitors to your website.
3) KPI Dashboard
Any data point that provides information about the performance of your campaign can be considered a Key Performance Indicator or a KPI. A KPI dashboard is a tool that gathers, analyzes, and infers any such data point from multiple digital marketing channels and compiles them together as easily understandable lists for your review. A well-oiled KPI tracking system can do wonders for timely and effective marketing strategy-making.
4) Customer Feedback
You can choose to get your information straight from the horse’s mouth. Conduct surveys through questionnaires to ask leads how they learned about the company. Restaurants frequently apply this ROI measurement tactic by requesting the guests to fill out a form after their visit.
5) Social Media Tracking
The business version of social media platforms like Meta or Twitter offers various tools exclusive to the channels that can help you track your campaigns. Some of them are free to use, while for the rest, you may have to upgrade to a premium account. The number of likes, views, comments, impressions, reach, CTRs, and bounce rates are all simple yet beneficial metrics to measure the success of social media marketing campaigns.
6) Ad Network Conversion Tracking
Just like social media platforms, all digital advertisement networks, such as Google AdWords, Facebook Ads, Instagram Ads, etc. provide tools to measure and track conversions. These not only help you determine the performance of the ads but also understand your target audience better. For example, you may find out that people aged 18-25 are clicking on Instagram Reel ads more, while the 45-60 age group is responding more actively to Facebook Ads.
7) CRM Tracking
A Customer Relationship Management (CMS) tool helps track each lead for every digital marketing campaign through their entire purchasing journey. A high-end CRM software is a marketer’s best friend when it comes to monitoring a potential customer through every stage of selling the product. With this, you can categorize where your highest leads are coming from, how many from each channel are converting to sales, and therefore, which campaigns are bringing in the most revenue.
8) Behavior Analytics Tools
The primary objective of these tools is to understand and quantify the interaction users are having with your digital marketing campaign. They monitor user activities on your marketing channels, run in-depth analyses of behavior patterns, and provide insights into the reasonings behind their actions. These tools help contextualize key metrics – why the customer is clicking or leaving – and allow you to better mold your campaign to cater to the target audience.
Easy Means to Improve Your Digital Marketing ROI
Despite being built upon statistical and numerical data, digital marketing is still immensely driven by consumer response. It can always be a hit-and-miss despite your best efforts. However, there are certain pain points that you can focus on to improve your ROI.
Set Goals
Start with realistic and attainable goals aligned with any financial limitations, seasonal restraints, or other circumstances. Measure the performance of the campaign against these set metrics to find which components are doing well and where there are gaps to bridge.
Play to Your Strengths
A mistake many marketers make is focusing on every possible channel instead of keeping it tight-knit. It is historically proven that investing in 2-3 channels that work best for your brand helps the campaign to stay laser-focused and yield higher ROIs as compared to spending on every potential opportunity.
Trial and Error
The projections of your marketing agency will not always be correct to the tee. Do not let the setbacks demotivate you. Instead, use it as a learning curve. This is the only way to narrow down your campaign to what your audience will best respond to. Treat every effort that doesn’t hit home as a starting point to do better.
Summing Up
Achieving your ideal ROI is more than visiting any digital marketing agency near you and pouring money into the currently popular trends. It is like nurturing a tree. From planting the seeds and watering the sapling to seasonal caring and pruning, digital marketing is an ongoing investment that, when done right, is bound to bear the fruits of your hard work. The key here, among other things, is to have patience.