How to Measure ROI for Digital Marketing Campaigns (and When You Shouldn’t)

How do you measure ROI for digital marketing campaigns?

Measuring ROI in digital marketing involves tracking the various channels comprising your overall digital marketing strategies and determining the success of your efforts against what they cost you. A digital marketing campaign typically includes multiple channels, such as search engines, company websites, email, social media, text message marketing and affiliate websites. It usually centers around a combination of paid and organic approaches to boost brand visibility, increase website traffic and drive more sales. Digital marketing campaigns tend to have many moving parts, some of which are inherently longer-term strategies by nature. As a result, it can be challenging to determine whether your digital marketing campaign is generating a return.

Unfortunately, plugging some basic information into an online ROI calculator is seldom good enough to fully understand the effectiveness of your digital marketing campaigns. It can be tempting to try to attach a simple ROI model to digital marketing efforts, but the nature of some marketing tactics means your overall marketing investment may not generate a tangible return for some time. Furthermore, a digital marketing campaign uses multiple channels and approaches, and it can be challenging to identify the net income associated with a single digital marketing tactic.

How do you calculate ROI?

Before we get into complex ROI models, it’s best to understand a simple case. The basic ROI calculation is straightforward: You take the value of your investment, subtract its cost and then divide by the cost of the investment.

In simpler terms, you take the change in your revenue after your marketing campaign has deployed, subtract how much you spent on it and then divide by that cost. That will show you your return per dollar spent.

(Increase in revenue – cost of marketing) / cost of marketing = ROI

Let’s look at an example: Say you invest $100 in a pay-per-click advertising program. When you compare your revenue before the program deployed to your revenue after it took effect, you see a revenue increase of $1,100. Next, you subtract how much you spent on ads and get $1,000.

At this point, you can already see how much raw revenue you gained from the ad campaign. To see your return per dollar spent, simply divide the adjusted revenue gain — $1,000 in this case — by the cost of the campaign. That will show you how much every dollar you spent on pay-per-click ads is really worth. In this example, your ROI is 10 to 1 — you brought in an extra $10 in revenue for every $1 you spent on marketing.

Of course, that simple calculation has limits. It doesn’t forecast long-term ROI on the campaign. It also can’t measure the indirect benefits of marketing, such as a social return on your investment. 

Below, learn about more advanced ROI measurements and tactics.

1. Tag links with UTM parameters.

If you’ve ever seen a lengthy URL with a question mark affixed to it, you’ve seen an Urchin Tracking Module (UTM) link. UTM links help track digital marketing campaigns in Google Analytics. When a user clicks a link tagged with a UTM code, Google Analytics tracks from where the user clicked the link as well as what campaign generated the lead.

“You have to make sure that the links you’re promoting across each channel are tagged properly with UTM parameters,” said Jordan Schneider, head of marketing at Boombox. “This is an essential step to both lead generation and e-commerce.” 

2. Set up digital tracking pixels.

Digital tracking pixels can be added to your company website to track where your traffic is coming from and how you can target those visitors later on as part of your remarketing strategy. The tools are effective for tracking traffic and transactions taking place on your website.

3. Use a customer relationship management (CRM) tool.

Highly rated CRM software helps track leads from first contact through the end of the buying journey. Using a CRM system to track leads generated by your digital marketing campaign and tagging them as such is an effective way to see how many sales opportunities your digital marketing spend is creating for your business.

“If transactions are not taking place on your website and you’re just using it to generate leads, you’ll want to use a CRM like HubSpot to track your leads through to a closed/won customer and make sure you’re pulling in UTM data to the CRM from your website,” Schneider said. “That way, when a contract is won with a given lead, you can track which channel that individual came from.”

With the data gleaned from these methods, you can calculate the value of your various digital marketing campaigns, whether your preferred key performance indicator (KPI) is an increased conversion rate or improved brand visibility and click-through rate. From there, it’s as simple as finding the difference between that value and your overall digital marketing spend. 

Calculating ROI, however, is not always the best way to tell if a digital marketing strategy is working. Instead, it’s better to understand the goals of each arm of your overall marketing strategy and how long each of those efforts will take to pay off. ROI should be clear from the start for some, while for others it may take some time to see a positive return.

>> Read Related Article: Tools to Track Key Performance Indicators for Your Business

What is a good digital marketing ROI?

There is no single answer to the question of what’s a good digital marketing ROI. “Good” will depend on your goals, expectations and strategies, but a couple of examples can help you determine the ballpark of a good ROI.

Let’s say you spend $100 on improving your Facebook outreach. That $100 leads to a total sales increase of $200. You had a 100 percent ROI. Is that good? It depends on your overhead. Say you break even if you sell goods at a 50 percent profit margin. You spend $100 to sell $200 worth, but it already costs you $100 to produce that much in goods. You’ll need better than a 2-to-1 ROI ratio for your marketing to be profitable.

That’s why a significant factor in determining good ROI is knowing your overhead. Your marketing returns must be high enough to cover operational costs with the new revenue they bring in. On average, a 5-to-1 ROI ratio is considered good and will be enough to be profitable.

That said, there are times when a lower ROI is still good because the campaign accomplishes a different goal. An obvious example is lead generation. Let’s consider the example of a property investor: The purpose of their digital marketing isn’t to purchase properties, and their digital marketing won’t generate any direct return on investment. Instead, it generates leads for property acquisition (which can later turn a profit). In this case, a negative ROI is acceptable if the cost per lead generates enough property acquisition leads to sustain the business.

In this way, ROI always has to be tempered by goals. If the goal is direct revenue increases from marketing, 5-to-1 is a good ballpark ROI provided it covers your overhead in the process.

When should you measure ROI for digital marketing campaigns?

To understand when measuring ROI makes sense for your digital marketing campaigns, you should first understand the concept of the conversion funnel. The conversion funnel explains where a particular lead is in their buying journey. 

High-funnel consumers have a general, informational interest in a topic related to your business, but they are unlikely to make a purchase in the immediate term and are primarily interested in information gathering and educational material. Mid-funnel consumers recognize they could likely benefit from your product or service, but they’re still deciding whether to commit. Low-funnel consumers are ready to buy a product or service. They are more likely to click specific advertisements for products or services they need, rather than query general information. Most of their research is done, and they are ready to be converted from lead to customer.

It’s important to consider ROI at any stage of the funnel, since you don’t want to invest resources wastefully, but ROI metrics are a better gauge of a campaign’s success with lower-funnel marketing. ROI can show how well you’re convincing customers who are ready to make a purchase to choose your product. Marketing efforts, however, also need to target customers higher up in the funnel by introducing them to your product and building trust. ROI doesn’t always indicate how successful your efforts are at the top of the funnel. 

It may be immediately relevant to measure ROI when targeting low-funnel customers by running a sponsored advertisement across social media channels, for example. When engaged in content marketing efforts to boost your brand’s visibility, cement its voice and improve search engine ranking, however, it could be more effective to measure traffic and engagement in the short term.

“ROI shouldn’t be the primary measurement when it’s hard to calculate the exact impact of some channel or activity on the outcome,” said Inna Shevchenko, marketing director at DataFlik. “For example, SEO and content marketing bring results in the long term. Therefore, trying to measure ROI after only a month or so won’t make sense. Similarly, the website’s impact is hard to measure because other channels are involved.”

“On the other hand, for some businesses, their main goal is improving image and brand awareness by utilizing social media and video marketing,” Shevchenko said. “In this case, it’s nearly impossible to measure ROI.”

How can you improve your digital marketing ROI?

Measuring ROI provides insight into where your digital marketing efforts are making an impact and where they’re falling short. Once you’ve determined your ROI, you can see where to concentrate efforts to optimize your investments. The following tips can help you improve your ROI.  

Set specific goals.

The first step in improving ROI is to set specific goals for your marketing campaigns. They should be tailored to each facet of your marketing strategy. Pay-per-click ads, for example, should not have the same goal as SEO investments. Be sure to set SMART goals that are clearly defined and take into account relevant factors, such as your costs. A specific goal, such as reaching an ROI ratio of 8 to 1 through a particular marketing channel, gives you a concrete target to work toward and is easier to measure than a vague goal of simply increasing ROI. 

Track relevant metrics.

Once you’ve set your goals, it’s essential to determine which metrics are appropriate to track and measure to evaluate the health of your campaign. You may look at lead generation, conversion percentages and conversion values. That lets you see how often a marketing component brings in a new customer, and then you can see how much they spend on average. 

Certain metrics, however, may be key for some goals and irrelevant for others. If you want to increase conversion rates from social media, for example, tracking your followers isn’t helpful. But if your goal is to increase brand awareness, you’ll want to look at follower count. Tracking the right metrics can help you adjust your strategy to keep every part of the campaign running smoothly and delivering the desired return.

Determine the most effective channels.

Your digital marketing strategy most likely includes a number of channels, such as email and various social media platforms. As you analyze the data on each channel, you may see that some perform better than others and decide to focus on improving your efforts on underperforming channels or narrowing your investments to the best-performing ones.

Look beyond the channels you are already using too. Take the time to research your target customer and see what channels they prefer to use so you can meet them where they already are. 

Test different approaches.

Experimenting with different approaches to see which tactics perform best is another great way to improve ROI. The ideal way to do so is by conducting A/B testing and comparing the results. You’ll want to test the largest parts of your campaign, such as media, channels and ad format, but you should also test smaller components. Comparing different versions of elements such as copy, design and email subject lines can help you find the optimal messaging to bring in the most return.

Invest in marketing automation tools.

Investing in marketing automation tools is a great way to streamline your marketing processes, saving you time and money, and, in turn, improving your ROI. Depending on your strategy, there are multiple marketing solutions that can help you stay organized, better understand data and avoid time-consuming, repetitive tasks. 

CRM software, for example, can help you automate methods to segment your audience, personalize content and implement loyalty programs. The best email marketing services allow you to automatically send personalized emails to consumers at key points as they move through the conversion funnel. 

Many marketing solutions also have high-level analytics that can provide advanced breakdowns of your spending and returns. They offer predictive modeling that helps you time your spending better and ultimately empowers you to squeeze every last drop out of your marketing investments.

Play the long game.

It may sound counterintuitive, but improving ROI sometimes means ignoring ROI. Some successes may not be seen immediately via this measurement, and you don’t want to abandon efforts meant to work in the long run before they’ve had a chance to become effective. For strategies targeting high-funnel customers or those geared toward bolstering brand authority, an initial negative ROI is to be expected, Shevchenko said. It just shouldn’t stay that way long term.

“Acknowledge that the ROI of marketing activities will be negative in the beginning,” she said. “However, as the business starts growing, they need to make sure that digital marketing ROI is positive and helps scale the business.”

What digital marketing metrics can be used as key performance indicators besides ROI?

To rely on ROI as the only measure of digital marketing success is too narrow a view, said David Azar, founder and CEO of digital marketing agency Outsmart Labs. In addition, you should consider other key performance indicators that can also shed light on whether your efforts are succeeding or failing.

“ROI can’t be the only indicator of success,” Azar said. “Impressions turn into engagement. Engagement turns into clicks. Clicks turn into sales. Measurements that show a campaign is trending in the right direction may be a stronger indicator of success than ROI.” 

Metrics besides ROI that could be used to gauge the success of early stage digital marketing efforts include:

• Cost per lead. Cost per lead examines how much it costs to generate one lead and bring them into your conversion pipeline. It’s calculated by dividing the total expense of the digital marketing campaign by the number of leads generated over time. A low cost per lead is beneficial.
• Cost per acquisition. Much like cost per lead, cost per acquisition measures the expense of securing an individual paying customer. It’s calculated by dividing the total campaign cost by the number of conversions attributed to that campaign.
• Impressions. Impressions refer to the number of times an advertisement or call to action (CTA) was viewed. Impressions provide insight into how many users are coming across your placement. The higher the number of impressions, the more your ad or CTA is being seen.
• Click-through rate. Click-through rate, or CTR, refers to the rate at which users who see an advertisement or CTA decide to click through to your landing page. CTR is calculated by dividing the number of impressions generated by an advertisement or CTA by the number of times it was clicked. A higher CTR means users are not only seeing your ad or CTA, but also clicking on it.
• Engagement rate. Engagement rate is a metric used in content marketing that demonstrates how much interaction the content receives from audiences. Factors such as comments, shares or likes influence the engagement rate. A higher engagement rate means your audience actively interacts with your content and signals brand recognition and authority.
• Customer lifetime value. Customer lifetime value, or LTV, is a metric that describes the long-term value of a converted customer. A recurring customer, for example, will have a much higher LTV than a one-time shopper. Measuring the LTV of customers acquired through a digital marketing campaign could reveal a longer-term ROI associated with your digital marketing strategies.

Realizing success through a multiprong digital marketing strategy means investing money and time. With the right amount of time, attention and patience, many of your leads can be nurtured into sales. Because of this, a more nuanced approach to ROI analysis can help you better understand what your initial investment in a marketing campaign is worth.

“Small business owners must be willing to make a realistic commitment to digital marketing if they want to see results,” Azar said. “The expenses come first. It requires investment and patience. Depending on the campaign, results may take months.”

“To reap sales and revenue, small business owners must begin with the end in mind, have a solid digital marketing strategy, invest and stay the course long enough,” he said. “Along the way, they should track how the campaign is trending toward its desired goals.”

Tom Anziano and Skye Schooley contributed to this article. Source interviews were conducted for a previous version of this article.