Measuring and optimizing your marketing processes is important to finding winning campaigns that have significant results on your bottom line. It is critical to establish specific key performance indicators (KPIs) for all your campaigns to determine your marketing return on investment. Measuring the ROI of marketing campaigns will help you uncover what works and what doesn’t so you can scale or optimize performance.
What is marketing ROI?
Marketing ROI refers to the sales generated from a digital marketing campaign. By measuring marketing ROI, you can see how each campaign is performing in terms of specific metrics that are important for your business. For example, you can measure the results of a campaign in terms of leads, page views, sales and social media followers.
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The most important metric that determines the true marketing ROI is revenue or sales. This metric helps you to know whether you are making or losing money with your campaigns. However, not all of your campaigns aim to generate revenue or sales. Some are used for brand awareness, others for getting more customers into your marketing funnel. Measurement of marketing ROI depends on what you want to achieve through your campaigns.
How to measure your marketing ROI
Here are a few common digital marketing metrics that are used for ROI analysis.
If the goal of your campaign is to convert visitors into leads or customers, this metric will help you see whether your campaign is accomplishing the goal. It’s important to check conversion rates by channels and devices so that you can invest more in channels and devices that are performing better than others.
Cost per lead
If you are bringing in leads through your marketing campaign, you need to measure how much you are spending on each new lead. To determine cost per lead, you need to divide the total campaign spend by the total leads generated through that campaign. If the cost per lead is more than what you will get after closing the lead, it means ROI is not positive.
Cost per acquisition/sale
This is the average cost of acquiring a new customer. To determine the cost per acquisition, divide the total campaign spend by the total number of sales generated through the campaign. If the cost per acquisition is more than what the customer will actually bring in to your business, it indicates negative ROI. You will need to optimize your marketing campaigns to lower the cost per acquisition.
Customer lifetime value
This metric measures what your customers will spend over their lifetime. To calculate customer lifetime value, you need to multiply the average sale per customer by the average number of times a customer buys per year, multiplied by the average retention time in years for a typical customer. Looking beyond the first purchase and seeing the long-term profit yields a more accurate ROI.
How to improve marketing ROI
Marketing ROI mainly depends on the cost of implementing campaigns. Here are some ways you can improve your marketing ROI.
1. Measure the effectiveness of core metrics.
Not all metrics carry the same weight. For any marketing campaign, the core metrics are sales, leads and traffic. Even so, you need to drill further down into these metrics to determine their impact on your revenues. For example, for traffic, you should measure things such as bounce rate, conversion rate and unique visitors.
2. Experiment with different marketing channels.
You can also experiment with different campaign channels to determine the ones that lead to the highest ROI. Some key channels that you can experiment with are email marketing, direct response marketing, social media, video marketing and paid ads. The performance of the campaigns will help you see the channels that your target customers respond best to.
3. Implement A/B testing across all campaigns.
You should split-test your landing page elements such as copy, graphics, navigation links, calls to action and website colors to find out what changes make more visitors take action. Successful A/B testing involves changing one element on a campaign and comparing its performance to another.
You should define the period over which a split test should run. After identifying a winning campaign, continue optimizing it so that you end up with the highest sales or leads at the lowest cost.
4. Focus on your ad spend and income.
To improve marketing ROI, it is also important to know how much you are spending at each stage of your campaigns. Keeping tabs on your marketing spend can help you uncover areas where you are spending too much but getting poor returns.
You can find out how your channels are performing by comparing the conversion rate, leads and profits generated by each. From there, decide whether the results are what you are aiming for.