Marketing is a necessary investment for all businesses. Without marketing, sales dwindle rather than grow, so it is absolutely crucial for business success. However, there is one key question about marketing that all business owners should ask themselves.
How do I know if my marketing is worth it?
In other words, how can you be sure that the ends are justifying your marketing means? The best way to answer this question is by tracking Return On Investment (ROI).
Why Is Return On Investment So Important?
Here’s the bottom line: Regardless of how much you’re spending on marketing, as long as you hit your target ROI, it is successful.
Tracking your ROI on a regular basis will inform you of marketing performance, and safeguard you from wasting your budget. It will also identify areas of your marketing that could be improved on.
It is also worth noting that ROI is easier to measure for online marketing rather than traditional marketing, as online results can be measured in minute detail. So, without further ado, here’s how to measure your online ROI in three simple steps.
How To Measure Return On Investment
1. Set Up Conversion Tracking
The first and most important thing you need to do is set up accurate conversion tracking. A ‘conversion’ is something you ultimately want people to do on your website. It’s an action that is tangibly valuable to you. A conversion could be an online transaction, a contact form submission, a phone call, or something else. Conversion tracking will tell you exactly how many of these your online marketing is producing. Pretty great right?
As an added bonus, conversion tracking can also tell you how your conversions were generated. Whether someone called you after clicking your Instagram ad, or purchased a product after finding you on Google, you’ll know about it. Conversion tracking can be set up using tools such as Google Analytics or Google Tag Manager. These tools will talk to your website and find out exactly what your users are doing.
2. Gather Your Data
Once you’ve set up your conversion tracking, the next step is to gather the relevant data. This may require some internal research, but it’s worth it. It’s also important to make sure all of the statistics you collect are from the same time frame.
If you own an ecommerce store, you’ll need just two simple metrics to calculate your ROI.
- Total Revenue – The amount of revenue produced by product sales as a result of your online marketing.
- Total Spend – The amount you have spent on online marketing, including ad budget, staff time and/or agency invoices.
If your main conversions are leads or enquiries, calculating ROI is a little more complex. You will require the following four metrics.
- Total Conversions – The total number of leads/enquiries you have received
- Success Rate – The percentage of your leads that turn into actual business.
- Average Revenue – The average value of each sale or service over a given timeframe.
- Total Spend – The amount you have spent on online marketing, including ad budget, staff time and/or agency invoices.
3. Calculate Your ROI
The final step is to put the numbers you have collected into one of the equations below. You will then be presented with a number as a percentage. Voila, that’s your ROI!
E-Commerce ROI = (Total Revenue) ÷ (Total Spend) x 100
For example, if you spend $8,000 on online marketing for your e-commerce store and it generates $65,000 in online revenue, your ROI equation would be:
65,000 ÷ 8,000 x 100 = 812%
Conversion ROI = (Total Conversions) x (Success Rate) x (Average Revenue) ÷ (Total Spend) x 100
For example, imagine that you’ve spent $10,000 on online marketing, which generated 250 conversions or leads. If 75% of your conversions turn into actual work, and your average revenue per sale was $455, then your ROI equation would look like this:
250 x 0.75 x 455 ÷ 10,000 x 100 = 853%
As a guide, an ROI of 100% shows that your income and marketing expenses are the same. That means you are losing money, as you haven’t included the cost of goods sold etc. If your ROI is around 400%, you are likely to be breaking even, or possibly making a small profit (depending on your industry and your profit margins). A great ROI percentage is generally considered to be around 800% or more. That said, each business is set up differently, so try and determine a personal target ROI and aim for that.
Ask The Experts
At Dubzz Digital Marketing, we can help you track your online return on investment and reach your targets. Part of our service includes monthly reporting and analysis, so you stay constantly updated on the success of your online marketing. Get in touch with our team to find out how we can help your business succeed.