Josh Pheneger
Senior Digital Strategist
Whether your organization is just getting started with digital marketing or has been running digital marketing campaigns for years, one of the biggest challenges is calculating your return on investment. Not only do organizations need to clearly define how they'll measure their rate of return, they also need to understand the process of stringing data together to follow the path of the lead or sale.
The challenges of tracking digital marketing ROI
- Attribution. It's important to know which marketing tactics, digital marketing or other, to which you’ll attribute lead generation, revenue, or conversions.
- The Costs. Theoretically, paying $500 for Facebook ads is much more expensive than posting “free” content throughout the month on your timeline. You’ll need to decide, however, if you’re weighing the cost of time and resources in your ROI equation.
- Closed Loop Reporting. If you’re like most organizations, you don’t have one platform that does your advertising, analytics, reporting, and also houses your CRM. This means that you need some way for the data to pass from one system to another to follow the path of the lead.
Some useful digital marketing ROI metrics
True ROI
Probably the holy grail of tracking digital marketing ROI, this formula at a high-level is actually about as simple as it gets:
(Revenue from Digital Marketing - Expense of Digital Marketing) / Expenses of Digital Marketing
The equation above will give you an ROI percentage. If it’s positive, then your digital marketing is generating a positive return on investment (ROI).
Cost per lead
If lead generation is important to your business, which is more common for B2B businesses, then cost per lead can be a good leading indicator of success. This metric is another simple calculation:
Expense of Digital Marketing / Total Number of Leads
This calculation can be done on a more frequent basis, such as monthly, and can also be done over longer periods of time, like a year. Tracking month-to-month and year-to-year can give your organization a good sense of whether your digital marketing efforts and marketing investment is getting more or less efficient and effective.
However, it’s also common for B2B organizations to have a hard time connecting a digital marketing source to lead generation to eventual sales, whether due to disconnected technology platforms or lack of internal tracking processes. Fortunately, I'll address some tracking issues later on in this article.
Lead Close Rate
While not necessarily a direct indicator of digital marketing ROI, lead close rate (also known as lead conversion rate) is more an indicator of lead quality. If your digital marketing efforts are generating an increasing number of leads, but your sales team is having a hard time closing them, your digital marketing strategy may simply miss the mark. Lead close rate can be calculated with a simple formula:
Leads Closed / Leads Generated
Depending on your organization’s sales cycle, it may make sense to measure this on a month-to-month basis (very short sales cycles) or possibly over longer periods of time (longer sales cycles).
What are considered digital marketing “expenses” and “revenue?"
In a general sense, you likely understand expenses and revenue if you’ve taken an intro to accounting course or even casually looked at your bank statement. Where it gets more complex is how you define “revenue” and “costs” related to digital marketing.
Digital Marketing Expenses
When building your organization’s ROI formula, you can decide how in-depth and far-reaching you want to be when including expenses in the equation. Here are some things to consider:
- Ad Spend. This is going to be the most common expense. Ad spend includes the costs of advertising on Google Ads, Facebook, Instagram, LinkedIn, or any other ad or social media platform.
- Technology Costs. Are you using any technology toward digital marketing efforts? Think platforms like SEO or PPC software, design software to build digital ads, email marketing platforms, etc.
- People Costs. Do you want to include the cost of the actual people needed to develop your marketing plan and administer your online marketing strategies? If so, make sure to add in the costs associated with their time.
- Third-Party Costs. Are you using any agency to assist you with your digital marketing efforts? Do you use independent contractors for content writing or designing?
Digital Marketing Revenue
For most organizations, tracking revenue begins and ends when the revenue is actually realized, or at least when there is some guarantee that revenue will result from a sale, contract, or agreement. Let’s look at a few other angles:
One-Time Sale vs. Lifetime Value
In most cases, organizations will track the revenue from a sale individually at one point in time. However, consider the long-term value of that customer. Let’s say that customer comes back and makes 10 more purchases, or even becomes one of your largest clients. The customer’s lifetime value is much higher than just that initial transaction. Using a lifetime value model, you would attribute all of that customer’s future revenue to digital marketing (and possibly to a more specific digital marketing source like Facebook advertising).
Attribution
Here’s that word again. How do you know that certain revenue can be entirely attributed to a digital marketing activity, or digital marketing in general? Consider a customer who saw a digital ad, went into a store, talked to a representative, and decided to purchase. Should the representative get some credit for that sale?
As an organization, you need to decide if 100 percent of the revenue from a sale or agreement should be attributed to digital marketing, regardless of any other touch points that influenced it along the way.
How to track digital marketing ROI
Okay, so now you have a sense of which formulas you might want to use to calculate ROI. You also have an idea of which marketing costs and resources will be considered expenses and how you’ll characterize sales generated as revenue (one-time vs. lifetime). It’s time to make sure you have the technology and processes in place to begin tracking.
Start with the Source
All your digital marketing efforts start with a source. Whether it’s a blog post, an email, or a digital ad, this source lives somewhere on the web. One of the most critical parts of tracking digital marketing ROI is being able to identify the source. You do this through tagging all your links within email, blogs, ads, etc. with UTM parameters, which are tags you add to a URL that sends valuable information to a tracking platform.
Pro Tip: Use Google’s URL builder so you don’t have to worry about making any mistakes when adding UTM parameters.
Implement a Tracking Platform
Speaking of tracking platforms, you need one. Undoubtedly, the industry standard is Google Analytics. If you don’t have an analytics tracking platform on your site right now, do it. Run. If you aren’t sure how to do it, call your friendly developer. Tell him it’s an emergency.
Google Analytics is not only going to allow you to see a wealth of valuable information about where your website traffic is coming from, it'll also give you insight on how users are behaving on your site and, most importantly, if they’re converting. Oh yeah, and it can read those handy UTM parameters we mentioned above.
Identify and Set Up Conversion Points
With regards to tracking return on investment, there are two definitive conversion points you’ll want to identify and track on your site:
- Lead Generation. This is any place on your site where you receive a lead. The most common points are contact forms, gated content forms, etc.
- Purchase Points. If you have an e-commerce website that allows purchases to be made within the site itself, you’ll be able to track that directly. In fact, get into Google’s enhanced e-commerce tracking and you’ll have access to a wealth of purchase information.
At this point, you should be able to calculate things like cost-per-lead and even total ROI if you have an e-commerce site.
Closed-Loop Reporting
When you want to track ROI, but the transactions or revenue aren’t being collected on your website, you’ll need an extra step. Once a lead is generated, it's sent somewhere, such as:
- A CRM (customer relationship management system)
- A CMS (content management system)
- An email alert to a specific individual or group
- A spreadsheet
This is most commonly where the data chain breaks. It’s extra work, and quite possibly extra development (through an API or third-party software) to connect a website or an analytics platform to the final landing spot for leads. Because of that, it typically doesn’t happen.
If your organization deals with high-value, infrequent sales resulting in revenue, you may be able to simply refer to an earlier source of data to attribute that sale to a specific marketing effort or channel. The challenge is, this data is often anonymous (including Google Analytics), so connecting a name, email address or company to any kind of data can be a challenge.
Diving Deeper with Digital Marketing Return on Investment
By now, you’re a pro's pro – or at least you know the process of setting the stage to track your digital marketing ROI. But you shouldn’t settle there. Knowing your overall ROI for your digital marketing efforts is great, but it won’t necessarily help you steer your digital marketing strategy for the future.
Digital Marketing ROI by Channel
The digital marketing budget - whether shoestring or huge, many business owners and marketing leaders spend hours, days, or weeks trying to identify where to allocate their funds toward digital marketing. Wouldn’t it be a good idea to make those decisions based on recent, accurate, historical data tied to real revenue? We sure think so.
That’s why you should be breaking down your digital marketing ROI by channel to identify the most cost-effective channels for your business. Some simple suggested breakouts include:
- Digital Advertising. It probably makes good sense to break this down further at least by network (Google, Facebook, etc.). You can also break this out by display ads, search ads, remarketing ads, etc.
- Organic Search. How much of your revenue can you attribute to customers finding your site, products, or services from a search engine and converting?
- Social Media. We would recommend separating organic social media (not paid) out from your paid social media efforts. Once again, we’d recommend breaking this out by channel as well (Facebook, LinkedIn, Instagram, Twitter, etc.)
- Referral Traffic. This is traffic that’s coming from other sites. Do you have a partner that links to your site that is driving new business your way? Or are your guest blogging efforts paying off? Find out.
- Email. Are the email marketing tactics you’re using generating revenue? Go as far as tagging your email by type (newsletter, promotion, etc.) to dive nice and deep.
Missing on this list is “direct” traffic, which would typically indicate a user coming directly to your site by typing in your URL, visiting from a bookmark etc. Lately, measuring “direct” has gotten trickier, because it could include some wildcards like traffic from a mobile phone where someone is visiting a browser from another app they had open. In general, this channel is hard to attribute directly to digital marketing activities.
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At this point, we should have covered the rationale for tracking digital marketing ROI, the process for getting started, and the steps to integrate tracking. If your organization is in need of assistance with Analytics, Reporting, or ROI, or simply needs a better partner to maximize your digital marketing investment, get in touch with us!
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