At Augurian, we believe that digital marketing campaigns need to be treated as investments. The best way to tie a digital investment to overall firm performance is with Return on Investment (ROI). But with so many variables and places to attribute marketing results, it isn’t as easy as you may think.
Digital Marketing ROI Can Be Hard To Calculate
Unless you are strictly an E-Commerce website, calculating digital marketing ROI is very challenging. This is especially the case with firms that specialize in services, B2B, and other industries where you aren’t directly selling products online.
With this challenge in mind, we bring you 10 metrics to measure your digital marketing ROI (and how to calculate them). Most of these metrics are not direct inputs into calculating ROI, but should help you get a broad sense for whether or not improvements are being made in profitability as a result of digital marketing.
1. Unique Monthly Visitors
- This metric tells you how many people are coming to your site on a monthly basis. It is very broad in the sense that without digging deeper, we don’t know how valuable this traffic may or may not be. There’s no need for calculations as it’s tracked directly in Google Analytics.
- To get more specific, we can segment the traffic by source (paid, organic, social, etc) and then look at value-based metrics on these segments (more on this later).
2. Cost Per Lead
- With cost per lead, you should be able to get a general sense of whether or not your digital marketing efforts are profitable.
- This metric is usually associated with paid traffic, since you don’t technically pay for organic traffic.
- This is calculated directly in AdWords (and other advertising platforms) and is usually called “cost-per-conversion”
- It is up to you to make sure that your conversions align with what you consider to be a lead, and that you are not over or under counting. This can result in skewed cost-per-conversion data if not properly set up.
- On the organic side, you aren’t paying on a per lead basis. Instead, you’re paying for SEO strategy and content marketing. These efforts result in lead generation over time, but it can be difficult to tie it back to a per lead cost. (Read more on SEM vs SEO)
3. Cost Per Acquisition (CPA or CAC)
- This metric tells you what you are paying to acquire an actual customer, not just a lead.
- Again, you can look at this nearly real-time for paid campaigns, while it doesn’t directly apply to SEO efforts.
- Ideally, you will blend the two lead sources together to see your actual Customer Acquisition Cost across all of your digital efforts.
- CPA/CAC is calculated by your total digital marketing spend divided by your number of acquired customers.
- Return on Ad Spend is a useful metric if you are able to tie revenue directly to digital marketing efforts.
- If we think of digital marketing ROI as: ROI = (Net Profit/Total Cost)*100
- Then ROAS is: ROAS = (Revenue/Total Ad Spend)*100
- Basically, ROAS looks at revenue instead of profit, factoring in ad spend but no other costs such as cost of goods sold.
- For example, say you spend $100 on ads and get $300 in revenue as a result, but your product also costs $100 to make.
- Your ROAS would be 300% [(300/100)*100] but your ROI would only be 50% [(100/200)*100]
- So ROAS is useful to a degree, but you need to fully understand your profit margin to know what ROAS percentage you are profitable at.
5. Average Order Value (AOV)
- This metric is most useful for E-Commerce stores, but services and B2B can use the next metric instead.
- AOV tells you how valuable your customer is in each instance that they purchase.
- For E-Commerce, we can multiply the AOV by the repeat rate to get an even more valuable metric, Customer Lifetime Value.
6. Customer Lifetime Value (LTV)
- LTV applies to every kind of business. It is necessary to know because it gives you a sense of what you can afford to pay in ad spend to acquire each customer profitably.
- As mentioned above, E-Commerce can get an exact calculation for LTV. Other industries will need to come up with more of a projection, or possibly use historical customer data to predict what LTV might look like.
- Read a case study on how Starbucks calculated their LTV>>
7. Lead-To-Close Ratio
- Your Lead-To-Close Ratio is simply your total number of leads divided by how many leads have been closed.
- This metric is very useful for sales efficiency measuring, but can also tell you if your leads are high quality, and also help project your digital marketing ROI.
- Let’s look at how we can arrive at projected digital marketing ROI if we know our Lead-to-Close Ratio (LTCR), Cost of Goods Sold (COGS), and Cost Per Lead (CPL). (Some companies don’t have a true “COGS” but can consider other variable costs here)
- Example: We have a lead-to-close ratio of 4, meaning that we close 25% of our leads. Our cost per lead is $10. LTV is $200 and our cost of goods sold over that lifetime is $80.
- We’ll shorten the formula by assuming that our Customer Acquisition Cost (CAC) = LTCR*CPL. In our example, this gives us a CAC of (4*$10) = $40.
- From above, ROI = (Net Profit/Total Cost)*100
- Projected ROI = [(LTV-COGS-CAC)/(COGS+CAC)]*100
- Projected ROI = [($200-$80-$40)/($80+$40)]*100
- If we’ve only managed to confuse you further about calculating digital marketing ROI, this post from Search Engine Journal might help clear things up.
8. Branded Search Lift
- This metric measures increase in brand awareness over time as a result of digital marketing efforts.
- You can calculate it by beginning to track the number of search queries that include your brand name per month.
- Over time, as you continue to track this, your branded search lift is simply how many additional monthly searches your brand receives.
- In most cases, this isn’t only the result of search marketing, but all of your marketing campaigns.
- Read Google’s Study on how search ads lift brand awareness>>
9. Average Position
- Your average position shows which ranking you receive by search engines for keywords, on average.
- You can track it in Google Analytics for organic and in the publisher platform for paid.
- An average position of 1 would mean that you show up as the top result for every single keyword.
- If your average position is dropping closer to 1 over time, then your SEO and content marketing efforts are starting to have positive results.
- A lower average position will usually lead to higher click through rates, which means more traffic. If your SEO strategy was targeting valuable search terms to rank for, then you will likely see increases in revenue as well.
10. Non-Brand CTR
- Your non-brand click through rate is a good indicator of SEO performance. For this purpose, you can track it in Google Search Console.
- It also applies to paid search campaigns, where Google and other advertisers reward high CTR ads with priority positioning. In this case, it’s tracked in AdWords and other publisher platforms.
- Again, this metric doesn’t tie directly to leads, revenue, or digital marketing ROI – but in many cases, you will see a positive correlation between them.