Measuring ROI in Digital Marketing
Digital marketing is marketing delivered through digital channels. As a term, it covers search engine optimisation, websites, social media, email newsletters and mobile apps. It’s broad, diffuse, and often demands specialist skills and experience that come from dedicated personnel.
However, a lot of digital specialists aren’t marketers. They’re not strategists. And they tend to view success on their own terms: if they’ve got you the views, likes and shares, their job is done. They’re not thinking in terms of money spent and money gained, and they sometimes struggle to prove the return on investment - how their activity impacts the business’ bottom line.
We’ve already tackled three myths like this - marketing isn’t all about lead generation, it’s not an unnecessary business cost, and it’s definitely not all about big ideas. Now our continuing mission to bust the marketing myths brings us to Return On Investment (ROI), and how digital marketers in B2B businesses can prove their work is worth the spend they’re asking for.
What is the myth?
Many digital marketers will try to tell you that you can’t measure ROI on their work - not directly, not unless you have expensive, all-encompassing marketing software. Instead, they focus their attention - and yours - on more abstract metrics such as reach and engagement.
These are important things to track - you want to know how widely your message is being spread, and how many people are following your calls to action - but the most important metric is ROI. If you’re spending, you should be earning. Digital marketing types often lose sight of this, distracted by their own goals, and they take plenty of business leaders along with them.
Digital professionals, who understand email, web content and social media comms in isolation, don’t always understand marketing - the activity that generates customers and creates profit.
Marketing is more than communications. It’s a series of core principles that define your business and offering, from Unique Selling Point through to target customers, pricing, lead generation and retention. Marketing touches every aspect of your business and it should be fundamentally concerned with prospects, customers, investment and returns.
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We’re not saying measuring ROI is easy, however. The buyer’s journey is complex, particularly when prospects move through multiple digital channels and many minor contacts with your brand. It isn’t easy to predict where people will go next, or when they’ll be ready to convert and purchase.
Marketing software can make the heavy work of tracking, analysing and predicting user activities easier, but it’s not the only way to measure ROI. Businesses which don’t have the software in place can instead focus on two essential metrics for establishing marketing ROI:
- Marketing as a percentage of sales. Divide your sales income by your marketing spend and you’ll have that figure, which should ideally lie between 4% and 8%, and seldom exceed 15% unless there’s a new product to push or a new market to break into. That gives some clarity to your marketing investment by putting it in the context of the overall business - how much of your return is being churned straight back into marketing?
- Cost per acquisition (CPA). This time, you divide your total marketing spend by the number of successful conversions. As above, the ideal figure should be fairly low in comparison to revenue. A CPA of £50k is fine - if the customer is worth £500k over a five year contract. If you’re looking at £100k, on the other hand, you’re spending far too much - half your profit on getting them on board.
It’s also worth focusing on customer retention metrics, for the simple reason that your chance of making a new sale with an existing customer is a comfortable 60-70%, compared to 5% for a totally fresh customer journey. Existing customers are a safer bet, and more likely to provide ROI - and therefore you need to factor existing customers into your ROI calculations. There are three metrics to keep an eye on here:
- Customer lifetime value - the average amount each customer spends during the average amount of time they spend with you
- Churn rate - the turnover of customers who stop buying every month. It’s a tricky one to measure and it’ll never be nonexistent, but it should be as close to zero as possible.
- Customer retention cost - the amount you spent on retention activities, divided by the number of customers successfully retained. This ideally sits at about 33% of your marketing budget - if you’re spending much more than that, you’re over emphasising retention at the expense of growth.
Your marketing is an investment and therefore should make you a significant return. If you don’t know the return it’s delivering, how can you judge if it’s a worthwhile investment?
Don’t believe the myth that digital marketing is too complex to track. It’s only true if you get lost in the details. Follow the money and you’ll find the figures - the crucial percentages that indicate how much you’re getting back for every pound you spend on digital marketing.
Our Marketing Directors understand that digital marketing’s like any other marketing medium - it can be tracked, measured, and understood. To find out how they’ve built their insight, why not get to know them?