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What is ROI?

What is ROI?

When you read or talk about digital marketing, the term ROI probably comes up pretty often, and for a good reason. ROI stands forreturn on investment, and it’s a key metric for understanding how effective your online marketing truly is.

In digital marketing, especially in terms of businesses that have been in the online game for a while, we tend to get excited about trends, fads, and tech that promises to make appealing to our audience easy. Whether it’s drawing up animated videos of dancing cows or making your stand on every new social media platform that hits the app store, it’s hard not to try our hand at everything just to see if it’s the ticket to Profit Town in Cash Money County.

But, if you are continually sinking funds and creative resources into efforts that aren’t putting money back in your business’s pocket, you want to know about it, and quickly. Trying new things is exciting, but not every novel marketing tactic is the right move for your business or your customers. Keeping a close eye on your ROI allows you to be flexible and responsive to your customers’ needs without bleeding cash through fruitless marketing attempts.

Measuring Your ROI

When thinking about ROI, it’s first important to remember that not every marketing strategy focuses on cash being the ideal “return.” In some cases, you’re looking for signups, leads, or conversions, which should also be considered when you’re thinking about where to go with your marketing.

It would help if you also kept in mind that not all strategies play well with all ROI measures. For example, emails have a very different set of standards than blogs when calculating your returns. Let’s look at how to calculate an example ROI for some of the most common digital marketing techniques, including social media, email, and website landing pages.

Social Media

Most businesses are spending money on their social media advertising, along with countless hours designing, pushing out, and promoting posts. That’s why click-through-rate is a prevalent metric used to calculate ROI for this particular platform.

Simply put, CTR compares the number of times a particular advertisement is clicked and divides it by the number of times the post is seen (impressions). This number is important in the same way that understanding the context of any ratio is important… Percentages tell a story that the number of clicks can’t tell.

Let’s say that you post two separate posts. One was clicked 10 times, with 100 impressions, while the other one is clicked 50 times with 700 impressions.

Using the CTR formula, we learn:

Ad 1= 10 clicks ÷ 100 impressions = 0.1, or 10% CTR

Ad 2= 50 clicks ÷ 700 impressions = .07, or 7% CTR.

Even though ad 2 had more clicks, its CTR was 3% lower, indicating that, with more exposure, ad 1 can perform much better than ad 2. In fact, with the same number of impressions, ad 1 would be slated to hit 70 clicks, an increase of 3%.

Email

Email is often touted as having an ROI of 4400%, or $44 for every $1 spent. It’s certainly possible to hit those big numbers. Still, you have to ensure that your strategy is constantly monitoring and adjusting until you’ve found the formula that pulls in the big bucks without spending an arm and a leg doing so.

Email ROI calculation typically leans on a couple of different stats, including the amount you spend on marketing, including your email service provider and the cost of employee hours, the number of people that the email tempts into doing a particular action, and the amount in sales done due to clicks in a particular campaign or fiscal period.

Once you have all of that information, you plug it into the formula of (revenue-expenditure) ÷ expenditure.

So, let’s assume that you want to calculate your ROI for a three-month campaign. Your expenditure includes:

  • $300/month spent on your ESP, or $900
  • $30/hour, 40 hours a month in marketer pay for working on the campaign, or $3600
  • Total expenditure of $4,500

Your revenue takes into account:

  • $95 in average sales done by each lead
  • 170 leads in the three-month campaign period
  • Total revenue of $16,150

To calculate your final ROI, plug all of those numbers into the handy equation we mentioned earlier: ($16150-$4500)÷$4500=258.8%.

Website Landing Pages

For eCommerce sites, calculating the ROI is as simple as subtracting your website’s lifetime cost from your website’s lifetime revenue. It gets a little more complicated for folks looking for actions other than purchases, like downloads, email signups, or follows on a social media site, which will eventually lead to a sale.

To calculate the ROI of a particular landing page, you’re still going to need the lifetime cost of your website, along with the number of conversions and the number of people who follow through on the CTA of the landing page, otherwise known as your “closing rate.

Let’s start with website cost. This will be the total of the initial build, plus any monthly maintenance or subscription fees. Let’s say you spent around the average of having a web developer do it, or $6760 because you wanted a cream-of-the-crop, specially designed online hub for your business. Let’s toss in a $1,000 a month maintenance and content fee. If your site’s been up for 6 months, that is a total lifetime cost of $12760.

Then, look at the number of visitors you’ve had over that period of time– For our example, we’ll say 3,500.

But how many of those visitors actually did what you were asking them to do? To calculate, you’d divide the number of people who followed through on the CTA by the total number of visitors. According to Wordstream, the average conversion rate falls somewhere between 2-5%, so let’s split the difference and call it 3.5%. That’s 105 successful conversions.

Finally, you’d look at the overall average revenue that those successful conversions brought to your business. This can take some time to gather up, especially if you’re in the business of contract work or any other industry that isn’t direct sales. If those 105 successful conversions from that particular landing page turned into $36,000 in revenue for your company, you’re looking at an ROI of (36,000-12760)÷12760 = 182.1%. That means for every $1 you spend on your website brings in $1.82 in returns.

Next Steps

If you’re not happy with your ROI calculations, or you’re just looking to boost your numbers with a clear, comprehensive marketing strategy, the ROI of working with a professional digital marketer is invaluable. At Nativ3, we can help create campaigns, landing pages, and social media posts that draw in impressions, customers, conversions, and sales.

Drop a line, and we’ll help you find your path through the digital landscape.

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