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You gotta spend money to make money, so the business motto goes. But understanding the relationship between the money you spend and the money you make can be trickier than this simple saying suggests – particularly in the often complex and nuanced world of digital marketing.

But by working to understand the digital marketing strategies that do generate a return, you can continually optimise these strategies to grow your business in Christchurch.

Today we’ll be taking a closer look at return on investment (ROI), and how to calculate, measure, analyse and maximise this metric in relation to your digital marketing efforts.

What is return on investment (ROI) in a digital marketing campaign?

Return on investment, (ROI) is a metric used to calculate the efficiency, effectiveness and profitability of a business investment. In digital marketing ROI can be calculated at a macro level, for an entire strategy or campaign, or at a micro level, focusing on specific investments within a strategy or campaign.

Return on investment is one of the clearest and most functional metrics in digital marketing. It can be used to identify strategies that need refining or that simply aren’t working, and it can help to focus your digital marketing efforts on the investments that will make you the most money and spur the most growth.

How do you calculate the ROI of your marketing efforts?

There are a few ways to calculate digital marketing ROI. Let’s first look at the simple method:

(Sales Revenue – Marketing Cost) / Marketing Cost = Simple ROI

Let’s say you have been running a digital marketing campaign for a month. You’ve spent $1000 on marketing, and your ecommerce sales have totaled $3000 in that time. Plugging these numbers into our formula, we get:

($3000 – $1000) / $1000 = 2

If we express the result as a percentage, we get a simple ROI of 200%. With your marketing costs accounted for, you’ve earnt twice as much from the campaign as you’ve spent.

But simple ROI is only so useful – it assumes that all sales revenue is directly attributable to your marketing efforts, but in reality there are a lot of other factors that this calculation leaves out.

Take organic revenue growth as an example. If your sales numbers were already rising before you implemented your digital marketing campaign, this organic growth should be factored into the equation. Returning to our calculation above, let’s say we’ve averaged 10% sales growth in the 12 months before we began our campaign. Presuming this rate has stayed steady, we can account for this organic growth by removing 10% of the sales revenue, or $300, from our calculation:

($3000 – $300 – $1000) / $1000 = 1.7, or a slightly lower ROI of 170%.

Realistically, the more variables you can account for, the more accurate and insightful your ROI calculations will be. Even calculating the seemingly simple Marketing Cost figure can be complicated, as it can be hard to work out every single cost that went into the campaign.

For this reason most digital marketing agencies use digital tools for ROI calculations and analytics.

The different types of digital marketing ROI

While calculating the ROI of an entire campaign or digital strategy is a useful way to get a broad idea of its effectiveness, you’ll want to gain a deeper understanding of your situation by looking at each element of the strategy separately and drilling down on the numbers.

Social media marketing ROI

How effectively are you reaching and converting your target audience on social media? Calculating social media conversions can be a complicated affair, as you won’t often sell a product or service directly through social media. In this case a conversion might be a person clicking on a link in a Facebook post and navigating to a landing page, which can make it difficult to calculate a dollar value.

A tool like the Hootsuite Social ROI Calculator addresses this issue by getting you to assign a ‘lifetime customer value’. It then uses figures like your conversion rate and close rate to understand the return your social media marketing is generating.

Content marketing ROI

There are a number of ways in which the content on your website can generate a return, from attracting new customers by helping you rank high on the Google results page, to driving these customers down the sales funnel  by building familiarity, authority and trust.

A tool like Google Analytics can help you to quantify the value that your content marketing investment brings. You can create a conversion goal in Google Analytics, including the value you attribute to that goal, then easily track the return you generate.

Search engine marketing ROI

Much like content marketing, measuring the return of your search engine marketing (SEM) investment is a matter of establishing conversion tracking through Google Analytics. This can be quite simple for ecommerce businesses – a matter of tracking visitors from the Google SERP through your website to the checkout – but a little more complicated for leads-based businesses whose customers don’t take such a direct route to purchase.

Nevertheless, by identifying key conversions, and putting a value on these conversions, you get a sense of your SEM ROI.

Email marketing ROI

In terms of calculating ROI, you can think of email marketing as similar to search engine marketing, in that you’re sending out a message to your target audience in the hope that it leads to a sale. Like SEM, you can calculate the return you generate with the help of Google Analytics, by tracking conversions that come from the email campaign.

At that point it’s a simple matter of calculating the investment (adding up costs like your email service provider, tools, time and resources) to understand the return you’re generating.

What is a good ROI in digital marketing?

What number should you be aiming for when you implement a digital marketing strategy? Well, at the very least you need to achieve a positive ROI. If the number is preceded with a minus sign, your investment made a loss, so you need your ROI to be greater than zero.

But zero isn’t exactly an inspiring number, nor a particularly challenging hurdle to leap over. Most marketers agree that a basic sign of marketing effectiveness is an ROI of 100%, meaning that you’ve doubled your investment. The potential of digital marketing is often far higher though, and will vary a lot across different marketing services. Google claims that the average ROI for Google Ad campaigns is 800%, while some sources put the average ROI for email marketing at a rather incredible 3600% – i.e. you generate $36 for every $1 you spend.

Factoring in all the different marketing channels a campaign might stretch across, an ROI of 500% is a good number to aim for, while an ROI of 1000% would generally be considered a runaway success. But the number you aim for, and are capable of achieving, will depend on a wealth of factors that are unique to you: your business, your industry, your online presence, the level of your investment and more.

Maximise your ROI with Christchurch marketing professionals

While calculating your ROI might be simple enough, it represents just the first step in a far longer process. You then need to draw insights from that number to understand how to make it bigger, and the areas of your campaign and strategy that deserve the most attention and resources.

This is no easy task, which is why your business would be wise to seek professional help in driving up your ROI.

At Traction Marketing we’ve spent years helping Kiwi businesses capitalise on marketing and generate the highest returns possible. Our team has the knowledge and expertise to understand your current ROI and how to push it higher.

If you’re looking to elevate your online presence, and get more bang for your marketing buck, we’d love to help. Get in touch with our friendly team today.

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