Calculating ROI for Digital Marketing
Return on Investments
ROI is calculated as ROI = (Return – Investment)/Investment.
Seems pretty straightforward, right? There are only two things involved – the return and the investment. The reality is that calculating ROI for digital marketing is very difficult.
The reason for this is that we know that marketing is a process and that people have multiple touchpoints with a business before they buy. What is the ROI of a print ad? Or PR efforts? How many customers did you get from your social media posts?
It is difficult to answer these questions, and even if we create a marketing execution that drives action (like clicks) where we can measure, the risk is that we attribute the sale entirely to the last click. If this were true, nobody would invest in brand building, and 100% of marketing budgets would go to conversion tactics.
By now, we know that marketing is a process, and multiple things contribute to an ultimate sale. Our goal in evaluating and calculating ROI for digital marketing is to make smart investment choices that grow our business and create a positive impact.
Calculating ROI
ROI is calculated as ROI = (Return – Investment)/Investment. Seems pretty straightforward, right? There are only two things involved – the return and the investment.
The reality is that ROI is very difficult to calculate for any marketing activity. The reason for this is that we know that marketing is a process and that people have multiple touchpoints with a business before they buy. Many marketing investments are challenging to calculate the return on. What is the ROI of a print ad? Or PR efforts? How many customers did you get from it?
It is difficult to answer these questions, and even if we create a marketing execution that drives action (like clicks) where we can measure, the risk is that we attribute the sale entirely to the last click. If this were true, nobody would invest in brand building, and 100% of marketing budgets would go to conversion tactics.
By now, we know that marketing is a process, and multiple things contribute to an ultimate sale. Our goal in evaluating ROI is to make smart investment choices that grow our business.
Calculating the Return
The return is what you get out of your investment. While this seems straightforward, it isn’t. The reason we use KPIs in digital marketing is that tracing activities back to sales isn’t easy.
If you are calculating the return in your ROI, be sure that you consider the profit (not revenue) based on the lifetime value of a customer, which is usually more than just a single purchase. Many businesses that want to know the ROI of digital marketing don’t know their customer lifetime profit.
is an approach that has been developed for businesses to do a better job at distributing the “credit” for a sale across touchpoints. The idea of attribution modeling is to choose an approach to determine how different touchpoints contributed to a sale.
For most businesses that rely on multiple online and offline touchpoints, calculating the return from any one activity is a challenge. Longer sales cycle purchases are also difficult to measure.
Calculating the Investment
Calculating the investment is usually a little more straightforward, but it is essential to include all the costs.
As you consider your costs of marketing activity, consider:
Big Idea:
When calculating ROI for digital marketing impact, think optimization! It is better to do one network well vs. many poorly. Focus on gaining success with one network before you add another. If you find your calculations show you should put MORE investments into a network that is doing well, optimize and focus for the largest impact on your investments.
Want to learn more? Check out our digital marketing strategy course.
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