What Is The Formula To Calculate ROI Of Your Online Marketing Strategies? If there is an elusive and quite complex aspect to deal with in the digital sector, this is the return on investment of our companies .
ROI is not always easy to measure and often its calculation can be a real headache. But, thanks to him, we can know first-hand the real profitability of any type of investment. In the case of having a digital or local business and considering going more seriously, surely one of the aspects to take into account is this index.
Since that formula provides a relevant indicator to measure the success (or not) of our strategies. And speaking of return on investment in a digital strategy, since you may not yet know what this means of «ROI», I will start this guide offering you a definition that clarifies this concept. Do we put ourselves in a situation?
What is ROI?
The ROI (Return On Investment), is a formula that helps us calculate the profitability or the value that we generate through our marketing actions. In simpler terms, what it does is tell us how much investment our sale has cost us.
The idea is simple, right? With this formula we can know if our actions and marketing activities are correct. And even to know if our sales are profitable.
Now, do we usually calculate our return on marketing investment?
Surely the answer on many occasions is no. As I said at the beginning, perhaps much of the blame for this is due to the difficulties of measuring the impact of the actions that make up our Digital Marketing Plan or, simply, that we do not give it the importance it deserves.
So, now that we know what “Return On Investment” is, and thinking of providing more information on the calculation of ROI in marketing, in this new guest post, I am pleased to have the collaboration of my friend Carlo Farucci.
Therefore, go grab a calculator, more paper and pencil, to start measuring your return on investment, thanks to this great guide that Carlo has prepared for us.
Why is Knowing Our ROI So Important?
When we make a decision, we cannot do it lightly. If, in addition, that decision has to do with a marketing strategy, even less.
It is recommended to do it based on data, and that is why today we will talk about how to calculate ROI .
To have data, you first have to analyze marketing actions. This will provide a basis for deciding and improving the decisions we already make regarding our business.
What allows us to measure the performance of our campaigns is ROI.
For example, an economic quantification will tell us if a campaign has really been a success at a monetary level or not (regardless of whether it has been at a branding level).
In addition, thanks to the return on investment, we will be able to make more objective decisions based on the effectiveness of our campaigns.
Maybe a Google campaign will bring us many more sales than a Facebook campaign , for example.
But it may also be that in that Google campaign we are investing much more, and the ROI is lower than those of Facebook.
That simply suggests that if we invested more money in Facebook we would get sales in a cheaper way.
It is just a matter of measurement!
Some tools like Google Adwords (now “Ads”) or Google Analytics have this calculation included in their campaigns, since they give us the figure of how much it costs us for each click, each lead or each objective that we have set for ourselves in our campaigns.
Other companies use other types of tools, or do it manually.
The Important Thing is To Know How To Calculate It!
As we will see, this type of ROI is easy to obtain because it measures investment against benefits.
However, if you want to obtain a more complete return on your marketing campaigns, you should take into account many other factors, such as the salary of the person in charge of carrying them out, the hours spent, office costs, etc.
In this analytics and ROI guide you will find all the metrics you need to be able to propose an online marketing strategy that achieves significant results.
Of course: sometimes the “Return On Investment or Return of investment” is not everything. Perhaps, other times it is convenient for us to launch a brand launch campaign even knowing that the return will be negative.
In this case, of course, the goal will be to improve branding more than anything else. You have to be the one who sets the goal of your campaigns!
How To Calculate The ROI Of Your Marketing Actions?
To calculate the ROI in marketing you will basically need three things:
- A calculator.
- Figures of the investment made.
- Income generated by the campaign.
With these data, the formula to calculate it is as follows:
Let us take as an example that in a Google Adwords campaign we have invested € 10,000, and we have earned € 50,000:
[(50,000 – 10,000) / 10,000] * 100 = 400%
In this case, we have a 400% return. But as we already said, this is its most basic form of calculation.
We could also take into account in the investment the time spent by the specialist who created the campaign according to his salary, office rental expenses, supplies, etc.
Let’s dig a little deeper into it.
Let’s take another calculation as an example, knowing that these figures are not real and would have to be broken down more precisely.
Following the previous campaign, suppose that an SEM specialist, who charges € 2,500 gross per month, in a work day (8 h) has taken care of it.
On the other hand, we pay € 3,000 a month for rent plus office supplies.
Each day of office rental (24 hours) costs us around € 100, and a day of work from our specialist is worth around € 80. The cost sum amounts to € 10,180 (100 + 80 + 10,000).
So, the formula would look like this:
[(50,000 – 10,180) / 10,180] * 100 = 391%
The actual ROI of the campaign would be 391%, but this has been a very generic example, since it would also have to take into account expenses of the administration staff, for example, or some type of tax, or investors, etc.
But the opposite could also happen: that our a priori campaign produces positive results, but that it ultimately causes us losses.
Let’s take the example of a campaign in which we have invested € 1,000 and made € 1,500 of profits.
To this we add the dedication to this campaign of three people from the team, with salaries of € 2,500 gross per month, for two full days. Let’s say we have the same office expenses.
[(1,500 – 1,680) / 1,680] * 100 = -10%
In this campaign, although a priori it seems that we have earned an extra € 500, we have had a negative ROI (approximately -10%).
But perhaps it is a campaign that has given us a lot of notoriety and that was our objective, so (we repeat) this negative return on investment would not be so important.
Stick with that idea!
The important thing, after all, is to know your company or project very well to know how to calculate the cost of your actions, and thus measure the return on investment in the most accurate way.
How To Calculate ROI In Lead Capture Campaigns?
After reading the previous point, you are surely thinking … “Yes, but on the Internet many times we do not know the exact money that we have obtained with our campaigns”, right?
Something very common in online marketing actions is to carry out lead capture campaigns , or records from our database. Then, working and maximizing the conversion on our website , in one way or another we will try to make those records become clients of our business.
Therefore, in these cases it is not easy to say that we have won a specific monetary amount with our campaign. But, although it is not easy, we can estimate a return on our investment .
Let’s take the example that we invested € 1,000 in a Facebook Ads campaign , whose objective is to take users to a landing page where they can download a free template related to our sector.
The CTA could be “ Download our template and create your own online marketing plan! ”
Once the campaign was launched, we achieved these results :
- Total investment : € 1,000
- User reach: 200,000
- CPM (price per thousand users): € 5
- Clicks : 900
- CTR ( clickthrough rate): 0.45%
- CPC (price per click): € 1.11
- Leads : 800
- CPL (price per lead): € 1.25
This is usually already given by the same platform ( Google Ads , Facebook Ads, Twitter Ads , LinkedIn Ads , Instagram Ads , etc.), so first of all we already have data that can help us estimate the ROI or return on investment of our campaign .
In other words, we can report that with € 1,000 we have achieved 900 more visits to our website, and that of those 900 visits, 800 people have become part of our database.
Therefore, with € 1,000 we have obtained 800 potential clients for our business, which we will have to start working with other techniques (such as content marketing, email marketing or through a commercial)
If we also have a system in our company to know where our clients come from (in a more manual or more technological way), we could even get to know the economic benefits that we have obtained with our campaign (since we would know which clients have known us thanks to our ad)
ROI On Branding Campaigns, How Is It Calculated?
Until now we have talked about calculating it in campaigns aimed at sale. Now, how to calculate the ROI of a campaign whose objective is branding? it’s possible?
Actually, there is not much consensus on this, there are different opinions about it.
What we will try is to give you some advice so that you can measure the success of those campaigns that are not aimed at sale or have exact return numbers, but that do have a benefit for your company.
These campaigns may have positive effects in the medium or long term, and that is exactly why they cannot be said to be unrelated to the return on investment.
Let’s look at it more simply.
To start, the first thing we have to do (once we are clear about our objective) is to set a series of KPIs .
For example, if our goal is to increase the visibility of our brand, we will have to know how we can measure that visibility.
We could choose the following KPIs or key performance indicators:
- 1º Increase of mentions of the brand in social networks.
- 2nd Increase in followers on social networks.
- 3rd Increase in searches for our brand in Google.
- 4th Increase in visits from direct web traffic .
All this should be compared with the same month of the previous year or with the previous month (although the former is better, since we would eliminate the seasonal effect).
Suppose we have achieved the following:
- 1st Increase in mentions to the brand in social networks: + 50%
- 2nd Increase in social media followers: + 70%
- 3rd Increase in searches for our brand in Google: + 30%
- 4th Increase in visits from direct traffic: + 20%
»You may also be interested in: What Is KPI, Definition And How To Choose Your Units Of Measurement On The Internet?
Based on these key performance indicators, on average, we have increased our brand awareness by 43%. Even if it is on time.
However, the campaign has cost us € 5,000 and, at least directly, we have not had any income.
But don’t be alarmed!
We should not take it as a loss. We can, on the contrary, put it this way:
With an investment of € 5,000, we have managed to increase the presence of our brand in our target audience by 43%.
Not bad, right?
The second phase (that is why we say it is “investment”), includes an analysis of whether all this increase in brand awareness, in the medium or long term, also becomes an increase in sales.
Depending on the type of project and product, when the average average decision time before purchase passes, it measures the increase in sales compared to the period before the campaign.
These “indirect” sales are also the result of this notoriety action, so, as you can see, it’s not all losses!
What Is The Formula To Calculate ROI Of Your Of My Activity in Social Networks?
Surely at some point you include some strategies on social networks , actions that tend to be used almost exclusively for branding.
So how can we measure the outcome of these strategies?
Well, to measure your actions on social networks you must first think about the objectives you want to achieve. That is the basis.
»You may also be interested in: How To Design A Social Media Marketing Plan For Your Company Or Business? + Examples
Next, as in the previous point, you have to mark some key performance indicators.
Perhaps the measurement is easier here, since the most used social networks include analytics that will help you in the process. So choosing some indicators and measuring their evolution will not be very difficult.
Let’s return to the assumption that your actions are directed at branding .
Some key performance indicators that we could use to measure our effectiveness are:
- Increase in social media followers
- Interaction growth
- Increased reach of our publications
On the other hand, let’s imagine that your objective is to generate more sales .
The indicators could be the following:
- Increase in visits to the web from social networks.
- Direct sales from these social platforms.
- Users who subscribe to our newsletter from these.
Even in the event that there are no direct sales, these visits can be tracked in such a way that you will know with certainty that it has occurred thanks to your increased activity on social networks.
Do you want to know how?
»Make a Scorecard!
Doing all this work can be very complicated if your project has a large volume and you do not have a document in which to calculate and save all the history .
For this reason, many companies use scorecards to facilitate work, and thus also establish a homogeneous methodology to measure their actions.
A dashboard consists of a document (which can be an Excel or a specialized tool) that helps you see the evolution of your goals.
Of course, you must first mark what that goal is and the time you want to achieve it, along with different key performance indicators to help you measure it.
Later (either week to week, or month to month), you should record the evolution of those indicators to see if you are achieving your objectives or if you will at some point.
Review these results periodically and analyze their evolution, since from there you can obtain very important information and make decisions that take you closer to the stated objectives .
»Have a Contingency Plan Prepared
Without being pessimistic, we must bear in mind that sometimes things cannot go as we expect.
So it is very important that you have an action plan for different possibilities.
Thus, if in the third month you are still far from your goals, you can propose urgent actions to solve that problem.
Keep in mind that with this you can act quickly in the face of any adversity, and most importantly: you will be ready to do it.
»I Will Give You an Example:
We own a furniture store and we decided to launch an email marketing campaign to announce that we have 50% discounts in our outlet.
Initially, the expenses we have had are those of signage, graphic design of the promo and a person in charge of it. We do not plan to do PPC with the campaign: just announce it by email marketing and, perhaps, add some activity on social networks.
Our forecast is to achieve a 20% return on investment at the end of the first month of the promo but, once this period is over, we discover that we are at a real 10%.
Wouldn’t it be better if you already had a planned action at hand in case this eventuality arises? Or do you prefer to waste twice as much time thinking about what to do at the moment?
The first option is by far the best.
Continuing with the example above, let’s imagine that before launching the promo we would have considered this contingency plan:
- 1. If at the end of the first month we do not achieve a 10% ROI ⇒ generate organic support with social networks and launch a second email marketing campaign
- 2. If at the end of the first month we do not achieve a 20% ROI ⇒ generate organic support with social networks
- 3. If at the end of the third month we do not get 30% ROI ⇒ increase the discount by 5% more and announce it again through email marketing and social networks
- 4. If in the fourth and last month we have not achieved the 50% ROI target ⇒ launch a contest the last two weeks prior to the end of the promo, in which they participate in a trip contest if they approach the outlet and deliver a ballot at the time of purchase
This is a roughly laid out plan , but you should assess different possible spaces and establish an action plan for each of them. All of this will be possible, of course, thanks to regular ROI measurement and analysis .
Don’t underestimate its power! Remember that you can add this information in the same dashboard where you will measure the evolution of your project.
Well folks, this post about the return on investment and the measurement of it in different actions, whether sales or branding, reaches this point. I only hope that you can successfully calculate your return on investment and get all the results you set for your goals.