In online marketing, return on investment (ROI) is a performance measure that is used to evaluate the efficiency of marketing strategies. It measures the amount of money receive in relation to the amount you spent. It’s an important measure because it helps you measure the success of your online marketing efforts. In this article, we provide an overview of return on investment in online marketing.
If you are a business owner that is using any type of online marketing strategy, it’s important to compare the efficiency of your marketing efforts with the amount of money you are spending on them. Return on investment is a calculation that you can use to find out the amount of sales that you have made that are the direct result of a particular marketing strategy versus the amount the strategy costs.
Online marketing is ever-changing. New methods are constantly being introduced and marketers are using these tactics alongside tried and tested strategies. It goes without saying that you want to get the most bang for your marketing buck – you want to make more than you are spending on your marketing efforts – and return on investment can help you do just that. In other words, measuring your return on investment allows you to see if certain marketing strategies you are using are, in fact, a worthwhile investment.
Understanding Your Goals
To gain an understanding of return on investment and really determine the return on invested capital, you first have to underline what type of goals you are trying to achieve through online marketing. When you have a firm understanding of what it is that you want to gain from your digital marketing campaign, you measure your goals and determine the profitability of an investment.
In order to do this, you have to look at key performance indicators and their goals. Some common key performance indicators include:
- General performance: your leads, traffic, and reach
- Source based performance: organic search, email, direct traffic, pay-per-click, etc
- Channel based performance: your website, social media networks, search engines, blog, etc.
- Campaign based performance: click through rates, conversions, lead generation, conversion rates, conversions, etc
- Your individual goals
Calculating Return on Investment
The simplest way to calculate your return on investment and compare the efficiency of your key performance indictors is to incorporate it into your overall net income. To do this, you subtract the marketing costs of a specific key performance indicator from your sales growth and divide by the amount you have invested into a particular area. This equation would be as follows:
(sales growth – marketing costs) / marketing cost = return on investment
For example, if your sales increased by $1,000 and you invested $100 in a marketing strategy, your return on investment would be 900 percent. (Note that this is not a realistic return on investment, but just an example.)
By using this calculation, you can determine profitability ratio and see what type of investment return you are achieving.
Tips for Measuring Return on Investment in Online Marketing
How can you ensure that you are really seeing what type of investment return you are getting for your online marketing efforts? Below are some tips that will help you get the most out of measuring your ROI.
Monitor Your Goals
It is extremely important to monitor your goals regularly. For example, you might want to monitor traffic to your website on a daily basis so you can gain a real understanding of how your marketing efforts are impacting your reach. By regularly monitoring your goals, you will be able to see what is causing any fluctuations in the amount of visitors to your website. Also, keep in mind that there are factors that can influence meeting your goals; for example, if it’s a holiday, your website traffic might be higher, and if it’s a Friday, it might be lower.
In order to gather data, you need to communication with your key players; those who are in charge of the various online marketing strategies you employ, your sales managers, etc. Measuring return on investment isn’t possible without collecting data.
Calculate Your Return on Investment
Use the data you have collected and keep your goals in mind when you are calculating your return on investment. Doing so will allow you to really evaluate the efficiency of your marketing efforts in specific areas. Your calculations will help you determine if your investments in particular areas are actually paying off or if a particular investment was really worth your effort.
How to Improve Return on Investment in Online Marketing
If you find out that your ROI isn’t meeting your expectations, there are some tactics that you can employ to boost the profitability of an investment. Here’s a look at some strategies that might help:
Take Advantage of Retargeting
Retargeting has been proven to be a highly effective tool for increasing conversions, and thus increasing the growth and net worth of a company. This type of marketing strategy targets people who have expressed interest in your business, improving the likelihood that they will revisit and conduct business with you. Retargeting has proven to provide a high return on investment for countless businesses.
Social Media is a Must
If you aren’t using social media as part of your online marketing strategy yet, you really need to jump on the bandwagon. Social media allows businesses to reach wider audiences than ever before. It also allows them to develop a more personal relationship with consumers, which increases the likelihood that they will become customers. Social media can offer an incredible return on investment.
Increase Content Marketing Strategies
It’s long been said that content is king, and in terms of return on investment, it really is. Content marketing attracts new customers, engages existing ones, boosts your visibility and keeps your business in the forefront of consumers’ minds.