Measuring return on digital investment is essential to prevent the wasting of resources on inefficient marketing strategies. A positive ROI shows that the money you are spending is an investment, not an expense. Although it can be difficult to figure out ROI accurately, it is never impossible.
Create Goals for Your ROI
Before you start with any calculations or data gathering, you need to have a goal beyond achieving a positive return on digital investment. These goals should be measurable and exact. For instance, if you want to increase customers, you need to state by how much.
Furthermore, your goals need to relate to your business objectives. More followers on social media or a greater number of downloads of premium content are little more than vanity metrics. Whereas they do show that your marketing efforts are on track, they have minimal impact on your business success as a whole.
The best goals are those related to customer acquisition and sales — just make sure you are being realistic. Also, remember that as you are never going to achieve a 100 percent close rate, even a small increase in conversions will likely require a large increase in generated leads.
Key Performance Indicators (KPIs)
Once you have decided on your goals, start considering what KPIs are best for showing your progress. This will help you pick appropriate metrics to measure. Although some metrics are much easier to track than others, this should not factor into your decision — you need to pick those that matter most.
Metrics fall into three categories:
Reach relates to users’ awareness of your business and marketing efforts or how many people see the content on your website, blog, or social media pages. This category encompasses impressions, traffic, subscribers, and share of voice metrics.
When looking at these metrics, remember that you need to also consider how many of the users you are reaching are part of your target audience. It is no use reaching even a large number of people if only a minority ever turn into qualified leads.
Engagement refers to how interested users are in your content. High engagement implies that you are creating content that resonates with your audience, because users find it either useful or interesting. Some metrics to measure engagement include time on site, bounce rate, page views, return visits, referrals, and social interactions.
A final category of metrics is of those that concern conversions. These are the most important, as they will relate the most closely to your marketing goals. Examples of conversion metrics include brand lift, perception and attitudinal changes, behavioral conversions, lead generation, and sales lift.
After you have decided what to measure, you need to determine how to gather the data and how often to measure particular metrics. Usually, daily or weekly is ideal — if you leave it any longer, it may become difficult to notice and explain small changes.
Analysis involves finding out what the data mean and how you can utilize this information. There are no set ways to do this; it is up to you how you want to experiment.
A good place to start is with segmentation. By separating groups of users into categories, you can understand what makes them different. Another tactic to try is predictive modeling. By knowing what users are likely to do in advance, you can push them in the right direction. Both of these will demonstrate your progress toward your goals and give you a better picture of your successes and failures.
Data still means nothing until you report your findings in a meaningful way.
It is helpful to create a template for each metric to ensure you report your findings in the same way every time. By no means does this suggest you should limit yourself to spreadsheets. In fact, it is much better to find ways to display statistics that show relevance and provide cues for future action, such as with dashboards. Always think about who will be receiving the report and what they will need to do with it. Keep this in mind to give your reports context.
You also need to define what each term means. For instance, what do you consider a social interaction? Consistency will keep everyone on your team on the same page and help you create comparable reports.
Finally, you need to decide how often to report on performance. Most businesses opt for around monthly. This is plenty of time to gather a sufficient amount of data but frequent enough for you to adjust your targets whenever necessary.
Armed with all the above information, you can calculate ROI. For this, you will need to know the cost of your investment and its outcome (or the profit).
For a quick calculation, you can simply subtract the cost from the outcome, then divide the resulting number by the cost. Make sure to include all the expenses in the cost part of the equation, including how much you pay employees to work on marketing tasks and how much you spend on other resources. You can apply the calculation to determine ROI for your digital marketing effort as a whole, for a single tactic, or even for individual pieces of content.
A problem with the above calculation is that it ignores the fact that there may be multiple touch points leading up to a conversion. Before becoming a customer, a person may discover your brand through social media, arrive at your website through a blog post, download premium content, continue being nurtured through an email newsletter, and then finally complete the sale.
Attribution models allow you to consider earlier programs into your calculation for Marketing ROI when this would be useful. You can choose between five types of attribution models to find the one most appropriate for a particular digital investment.
The most popular model is the single attribution model. It is also the simplest — it attributes the value of a conversion to either the first or last contact. Whereas this can lead to useful information, it is unhelpful for complex nurturing processes and where a long period passes between first and last contact.
Single attribution with revenue cycle projections
You can improve accuracy of the single attribution model by including revenue cycle projections. This is useful for making long-term predictions about MROI. For instance, if you know the percentage conversions of a particular piece of premium content, you can better judge pipeline and future revenue.
To go a step further, there is the multi-touch attribution model. This allows you to consider every touch point leading up to a conversion. For a simple calculation, divide total value by number of programs. For greater accuracy still, you should use a weighting system, assigning values according to the importance of touch points.
You can also use an attribution model to test the success of individual tactics. This requires using a test group of target buyers and a control group. By monitoring differences, you can determine the effectiveness of a particular action.
Mix model attribution
The above attribution models do not always lead to a precise MROI, as they fail to take into account all the other factors that could contribute to profit, including organic sales growth. If you want to determine exact return, you will need to use full marketing mix model attribution. This also considers aspects like brand awareness, website authority, sales team assistance, SEO, and customer data, to name just a few factors.
After these calculations, you will have a clear picture of your ROI. However, this is still useless without context.
The first thing to do is to go back to the beginning and check the return against your goals. Look at where you succeeded and where you fell short. Next, see how you compare to competitors by checking your ROI against industry averages. You should also compare ROI to previous periods at your own company.
Finally, bear in mind that a decent return on investment is anything above 3.0. If you have much less than this, you have serious problems and need to take action to adapt your strategy. Ideally, you should be aiming for an ROI of 7.0 — anything higher than this is exceptional.
Measuring your return on digital investment should never become tedious. Instead of repeating the process mechanically time and again, think about how you can improve your measurements. For instance, it may give you insights into what goals you should be creating for your business. You should also work to improve the accuracy of your calculations and give the numbers more meaning. Make sure you are adopting the most meaningful KPIs, change the way you collect, analyze, and report data, and choose the most appropriate attribution models.