Are you running campaigns in AdWords, Facebook or on another advertising platform? Do you know whether your marketing efforts are paying off and which channels you should keep investing in to increase your product sales?
As marketers face more and more pressure to demonstrate that their activities are contributing towards the profit, there is a bigger need for you to be able to show your decisions yield positive results.
But if a particular channel or campaign is doing the opposite and causing your business losses, then the sooner you figure that out, the quicker you’ll be able to adjust your further marketing plans.
That’s where calculating and tracking your ROI becomes important. By being able to figure out how much you make from investing into a particular campaign or channel, you can figure out where to focus your budget.
Whilst it’s difficult to compare the performance of specific marketing tactics across every single industry and company, there are interesting conclusions that have come out from market research. As reported by Web Strategies Inc., the top 3 channels that generated the best ROI were email marketing, SEO / organic search and content marketing.
Email marketing has also been reported elsewhere to give the best ROI (source: Campaign Monitor), but you should focus on figuring out the correct ROI for your marketing activities and, based on that, decide which ones work for you best.
To figure out how to calculate your ROI, see the video below where Edward explains the steps.
*This video is part of ISDI online training courses for digital professionals.
so in this chapter we’re going to talk about return on investment or return on marketing investment
now this is a really powerful metric to let you understand whether a particular campaign is actually earning your company money or losing money, it’s something that’s really become only possible in a world of digital marketing when you can genuinely attribute particular revenue or particular customers to a particular online campaign
so the calculation is pretty simple, what we have to do first is find out what is all the revenue that came from that campaign source, or is attributable to that campaign
so let’s take the example of AdWords that we’re going to look at later in the chapter
in AdWords you’re going to pay for a search term in Google and when the customer clicks on the advert it appears in Google Analytics as being the source of that customer for that visitor
so if that visitor goes on to buy something at that session or the next you can say that yes their revenue was attributed to AdWords, so that’s your revenue – the revenue that’s specific to that campaign
then the next thing you’re going to measure is what did that cost you, again with AdWords it’s very simple because Google Analytics pulls the cost data from AdWords so it’s really simple to see in the table of numbers what was your campaign cost
but if you’re not using AdWords and you have another campaign, that’s okay, because you can actually import that cost data into Google Analytics, so let’s say for example you paid to send out your message to a third party email list, typically you would rent that email list for a certain amount per recipient, and that campaign cost you can import in
so let’s put some real numbers into this – let’s imagine that we get a thousand euros of revenue and our campaign cost us five hundred euros – so 1,000 over 500 is 2.
that is a positive return on investment – anything better than one hundred percent is good, roughly for every euro we spent on the campaign we’ve got two euros back in revenue, so we’d run that campaign again
now let’s imagine that actually our conversion rate wasn’t so good – we still spent 500 euros on the campaign but actually we only got 400 back in revenue
now we can see that our return on investment has dropped to 0.8 so this time for every euro we spent on campaign cost, we actually lost money – we’re burning money running this campaign and that’s not even taking into account the margin contribution, so it’s unlikely, whatever the product we sell for 400, that that is all profit
it’s highly likely that we only get maybe a hundred of that back as profit, in which case this marketing campaign is very expensive and it’s not doing us any good
so return on investment is a powerful way of measuring whether your campaign is positive ROI or negative ROI, and what you need to do is be able to attribute the revenue to the campaign and also to measure your costs, and use those two numbers together
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