Calculating the return on investment for your digital marketing efforts isn’t always an easy formula. For example, if you are running a Google Adwords “Cost-per-Click” campaign you are paying each time someone clicks on your ad, regardless if they make a purchase or not. How do you then decide the value for your investment?
Calculating your return on investment (ROI) will quantify your online marketing profitability and efficiency. Firstly, set a solid cost allocation strategy and acquirable goals which support your objectives. Calculating your ROI will show you the financial return you receive from your advertising and marketing campaigns. Working out your ROI simply shows you how much you spend and how much your investment has generated in a dollar value.
Digital marketing has changed dramatically using search engine optimization and social media platforms. Your goals can be measured by traffic, leads, conversions, etc.; these are used as Key Performance Indicators (KPI), which are supported in your ROI report. Tracking how customers found your business will help you determine your ROI on a specific campaign, such as Google Adwords.
Campaign costs are calculated on your businesses expenses. Business expenses vary dependant on the type of business you run. However, all expenses are based on your fixed costs and variable costs. Once you have tabulated all your fixed costs, variable costs, and expenses you are ready to calculate your ROI. Your key objective gives you more power over your investments and helps generate more profit.
Calculating your ROI is easy by adding up your campaign costs and plugging the numbers into the formula given below:
|Return (Gross Profit) – Investment (Campaign Costs) / Campaign Costs x 100|
Gross profit is taking the total revenue minus the cost of the goods. (Subtract the campaign costs from the gross profit, and then divide that number by the campaign costs. Multiply the resulting number by 100, which give you a percentage).
Eg: Gross Profit ($14,000) – Campaign Costs ($13,000) = ($1,000)
($1,000) profit divided by ($13,000) Campaign Costs = .07
.076 x 100 = 7.6 therefore, your ROI is 7.6%
What costs are considered as Campaign Costs?
Fixed costs: are those costs that remain consistent regardless of volume
- Printing and creative costs (business cards, flyers, etc.)
- Technical costs which include email platforms, website coding, etc.
- Air time on television and radio
- Costs associated with hiring writers or graphic designers
- Pay-per-click spend, display ad clicks, etc. (Google ads, social media ads, etc.)
Variable costs: are those costs that fluctuate as volume grows
- Stationary supplies
- Shipping costs
- Sales commissions, etc.
What is a good Return On Investments?
- Firstly, it depends on your specific goals and objectives of your company
- Typically Marketers consider an average ratio of 5:1. This ratio represents how much money is generated for every dollar spent in marketing
- ROI is measured by percentage and a return of 7% is considered safe and stable. Depending on your business and personal goals this percentage will vary.
It is advisable to monitor your goals and objectives on a regular basis. By assessing your KPI’s and results, you can make necessary changes for higher performance and increasing your targeting goals. You need to monitor and compare your investments to other similar investments to make sure you are allocating your dollars wisely. A good digital marketing agency will help you calculate your ROI for online campaigns they are managing for you. Please contact Engagement Marketing for assistance in calculating your Online Marketing ROI.