ROI in digital marketing — what it looks like, how to calculate it, and how to maximize it
Digital marketers have a lot on their plates. They’re constantly brainstorming new content, publishing fresh ads, overseeing influencer marketing campaigns, staying current on social media, and more — and figuring out how to make it all convert into business. But not all of these efforts generate an equal number of leads or deals. This leaves digital marketers wondering how to prioritize their work.
It comes down to return on investment (ROI). Calculating the ROI of your digital marketing campaigns highlights exactly what’s working and what’s not. This allows marketers to fund and execute the tactics that actually work and prove the value of that work to the C-suite.
In this post, we’ll explain what digital marketing ROI is, how to calculate it, and how to improve it over time.
- What is digital marketing ROI?
- Why measure digital marketing ROI?
- How to calculate ROI for digital marketing
- What’s a good digital marketing ROI?
- How to improve your ROI
What is digital marketing return on investment?
In digital marketing, return on investment (ROI) is the profit earned from every dollar your business spends on marketing efforts.
A positive ROI means that you’re making more than you invest — the customers you attract as a result of a campaign more than offset the cost of that campaign. A negative ROI is the opposite, and it happens when you spend more money on your marketing than you earn from it.
Why measure digital marketing ROI?
Understanding digital marketing ROI helps you identify the strategies that work best and empowers you to optimize your marketing budget. Let’s take a look in more detail at why you should incorporate digital marketing ROI into your marketing approach.
Determining if a digital marketing campaign was successful or not is a big decision. There are several metrics you can use to make that call, but at least one should be ROI. Set a target ROI at the beginning of the campaign, and then report whether or not the campaign delivered what was needed.
For awareness and brand-building campaigns, revenue and conversion might not be the primary metric, but you can still use ROI to help determine success. If you don’t expect a high ROI for the campaign, set a low goal for ROI at the beginning.
See what’s working
Digital marketing ROI can help you make more specific and nuanced decisions as well. Measuring digital marketing ROI can show you which aspects of any marketing plan are working and which aren’t or what changes helped and which ones did not. If you are spending more money on a campaign than you are earning, something is not working. With this information you can gain inspiration for other campaigns and refocus your efforts on the highest yield channels.
Allocate budget strategically
Once you know which digital marketing campaigns and efforts are delivering the best ROI, you can reallocate your budget to those channels. At the same time, you can phase out the campaigns with the lowest returns and put even more resources behind strategies that are performing well.
How to calculate ROI in digital marketing
In its simplest form, digital marketing ROI is the revenue directly driven by your marketing efforts minus the money you spent on the marketing, divided by the money you spent on the marketing.
ROI is calculated as a percent, hence the * 100. You’re calculating the percentage your original investment grew or shrank. A simpler formula looks like this:
If you’re starting a new campaign, you may need to ballpark how much ROI you can expect from the beginning. To project future ROI, multiply the number of potential customers you’re targeting by your conversion rate and average purchase price. That number represents your predicted return.
The number of leads is a rough estimate of how many people you expect to turn into leads, but not all leads turn into customers. So to make this more accurate, you multiply by the lead-to-customer rate — the average percentage of leads that convert to customers.
For example, assume a digital marketer expects their campaign to generate 1,000 leads and their lead-to-customer rate is 25%. Let’s say that including sales and discounts, the average sale price comes to $50. The predicted return would be $12,500.
If you know the predicted cost of your marketing efforts, you can now plug that number into your ROI calculation.
In our example, the digital marketer is planning to spend $5,000 on this campaign. That means:
These formulas don’t take into account outside variables or unpredictable situations that could affect a campaign’s outcome.
To get a holistic picture of your marketing success, you need to supplement ROI with other metrics like the ones we cover below.
Impressions and page views
To increase growth rate, you have to make people aware that your products and services exist. Impressions and page views are strong indicators of brand awareness. The more people who see your marketing and visit your website, the more they get to know your brand. Digital marketing campaigns that focus on impressions and page views may not create high ROI, but calculating “cost per impression” can be a good alternative to ensure you capture people’s attention without spending too much.
Click through rate
Users who are interested in your product or service will click on links in your digital marketing materials. Measuring click through rate (CTR) can show you which ads, email campaigns, or social media posts capture the most attention. When you know what engages potential customers, you understand how to drive traffic strategically.
Cost per lead and cost per acquisition
Cost per lead and cost per acquisition are more detailed measures of ROI. Cost per lead (CPL) represents the cost required to get the attention of a potential new customer, and cost per acquisition (CPA) is the cost needed to convert that prospect into a paying customer.
Calculating these two metrics helps you determine where specific issues lie. For instance, if your cost per lead is low but your cost per acquisition is high, there may be a disconnect between what you’re marketing upfront and what the customer is actually purchasing.
Return on ad spend (ROAS)
ROAS is a very close cousin to ROI. Instead of measuring the return of an entire campaign, ROAS examines the return of a single component of your campaign.
ROAS is typically tied to PPC ads, which makes it slightly easier to calculate — you know exactly how much money went in and how much came out. ROAS is almost the same formula as ROI but swaps marketing-related variables with PPC variables.
Keep in mind that ROAS doesn’t incorporate other outside costs, such as employee salaries, marketing software, and other processing fees. But just like cost per lead and cost per acquisition, ROAS still shows areas of improvement and opportunity at a more granular level.
Conversion rate — the rate at which leads turn into actual customers — is a robust metric if conversions are your ultimate goal. But it’s important to consider conversion rates for each specific channel, device, and ad. Looking at conversion rates from multiple angles can show you where some campaigns may be falling short and others are performing strong. For example, some campaigns may run better on mobile devices than laptops. If you see greater conversion rates for mobile, consider investing more time and money into those types of campaigns. And keep measuring your conversion rates to ensure that reallocation pays off.
Conversion rates can also help you project the ROI of new campaigns and set more reasonable budgets based on past performance.
Average order value
Average order value (AOV) is the average amount a customer spends when they make a purchase. AOV is important because you could be driving a lot of conversions, but if those new customers aren’t spending much, you won’t see an increase in ROI. Similarly, pushing people toward higher value products may increase your ROI and profit, but focusing on AOV might mean you see a drop in conversion rate.
Customer lifetime value
Customer lifetime value (CLV) is the amount an average customer will spend the entire time they engage with your business. Unlike some of the other common metrics, CLV is a long-term measure of digital marketing success. Converting customers with high potential-CLV means that your ROI will continue to grow with every new purchase they make. The higher the CLV of the customers you acquire the less worried you need to be about a low ROI early on.
Keep in mind that you need accurate metrics to be able to draw accurate conclusions. Ensure that you have proper tracking processes in place and are working with clean data.
What is a good marketing ROI?
The short answer is that a good marketing ROI is a ratio of 5:1 — you’re making $5 for every $1 you spend.
An ROI of 2:1 is barely profitable because other business expenses reduce that ratio closer to 1:1. The marketing ROI calculation considers direct investments, but does not usually include business costs like salaries and office space that were also necessary to make that campaign happen. A digital marketing ROI of 10:1 is considered exceptional. You're definitely turning a profit, even when you account for external variables.
Even though 5:1 serves as a solid benchmark, a “good” ROI is somewhat subjective. It depends heavily on your industry and use case. Some industries are more saturated and take larger marketing budgets to cut through the noise.
So don’t make ROI your end-all be-all metric. Instead, stick to your preset goals and key performance indicators (KPIs) — one of which might be ROI.
How to improve your ROI
Calculating and establishing a baseline ROI is great, but now it’s time to think of ways to improve it. Below are four common methods for raising digital marketing ROI.
Set goals and stay focused
Set achievable and relevant goals before you start any digital marketing campaign. These could be related to ROI or other digital marketing KPIs and should align with your budget constraints and scope. As your campaign progresses, report on these metrics to see if there are any gaps or if each specific part of your campaign is performing well. These areas of opportunity can help refine your campaign or create an entirely new one that caters better to your audience.
Focus on the channels that work best for you
Focusing on fewer channels can result in a higher ROI. Identify the channels — such as social, SEO, PPC, or email — that work most effectively for your brand first. Then, think about how to reallocate your marketing budget in a way that maximizes your returns.
Test and optimize
The only way to know how well your marketing campaigns work is to test them. Use variable tests to experiment with new copy, visuals, links, and more to narrow down what your audience responds to. Not only will testing improve current campaigns, but it’ll also give you a better starting point when launching new ones.
Attribution is one of the biggest challenges marketers face when it comes to measuring digital marketing success. Most conversions result from multiple prospect interactions with a brand. That’s why many marketers turn to multitouch attribution.
Weighing different aspects of your campaign lets you see which parts of your customer journey are the most effective and gives you a chance to fix the parts that may be causing customers to bounce. While taking advantage of multitouch attribution may not immediately impact your marketing efforts, it can greatly benefit your campaigns, increasing conversion rates and ultimately ROI.
Getting started with digital marketing ROI
Calculating and continuously monitoring digital marketing ROI is key to running a successful business. Without it, companies waste money on campaigns that don’t resonate with their audience or are launched on the wrong channel. Keeping a close eye on digital marketing ROI and other digital marketing KPIs can help you pivot when a campaign isn’t going well and invest in the highest-performing campaigns.
The first step in improving your ROI is implementing a marketing platform that lets you build engaging, personalized experiences at scale. To do that, you need a marketing stack specifically designed to create exceptional customer experiences.
Marketo Engage gives marketers the tools they need to scale their digital marketing. With built-in automation, reporting, multitouch attribution, and lead management capabilities, marketers can easily adopt best practices to maximize their ROI. The best part is that Marketo Engage seamlessly integrates with Adobe Experience Cloud, a comprehensive suite of tools for enhancing the customer experience through real-time data and personalization.
Boost engagement and growth with marketing automation. Watch Marketo Engage overview or take an interactive tour to learn more about how Marketo Engage can help you maximize your digital marketing ROI.