Return on investment (ROI) is a measure of how well your marketing campaign is performing against the money invested in it. Companies can analyze revenue growth and apprehend budget allocations for future projects by keeping track of their ROI.
But how to calculate ROI in digital marketing? The basic ROI calculation is pretty simple. Subtract the initial investment cost from the final revenue generated and divide the result by the total cost— multiply by 100 to get the results in percentage.
However, the ROI calculation will be incorrect without proper data and correct key performance indicators. Keep reading to learn how to calculate ROI for your digital marketing campaign precisely.
What is ROI and Its Importance in Marketing?
You can determine what sectors need improvement by calculating the ROI and analyzing your ROI statistics. ROI sets a benchmark for constructing marketing schemes. It also justifies whether you have an efficient budget.
ROI is a key performance indicator. By analyzing the numbers correctly, you'll have a clear vision of which strategies to improve and which ones to eradicate.
Formula For Calculating ROI In Digital Marketing
The general formula for digital marketing ROI is-
ROI = (Net Profit/Total Cost) x 100
However, for yielding precise results for ROI calculations, a number of factors are to be considered. These include-
- Setting Precise Marketing Goals
ROI alone can't measure or represent the total revenue of your campaign. So, it's essential to recognize specific marketing objectives before you. This is where it's important to understand your unique marketing objectives before you start analyzing data for ROI calculation.
Not everything is measured in monetary value within a digital marketing campaign that will directly contribute to ROI statistics. For example, target reach and clicks are substantial signs of progress, but as they have no monetary value, they are left out of the ROI calculation.
If you measure everything in terms of revenue, you'll miss the actual effectiveness of your campaign.
- Recognizing Key Performance Indicators
Your campaign should stand out from your competitors, and the uniqueness should reflect in the Key Performance Indicators (KPIs).
KPI indicates whether your marketing campaign is fulfilling the expectations set at the start of the campaign.
- Cost per Acquisition (CPA)
- New visitors
- Ad Sales
- Cost Per Lead
- Customer Value
- Average Order Value (AOV)
So, you’ll have to implement these in your ROI calculation if you want an exact measure of how well your digital marketing is performing.
- Accurate Data Collection
With exact numbers and the proper data collection method, the results yielded in ROI calculation will be correct. Otherwise, any inconsistencies during any step of the process, data collection, entry, transfer, or analysis, will distort the final results.
So, precision must be maintained during data processing.
- What ROI is suitable for digital marketing?
The average ROI is 5:1, where the ratios indicate the total profit gained for the amount invested. Generally, if the profit margin is 7% or more than the investment amount, it’s considered a good ROI.
- What does a 25% ROI mean?
25% ROI means that your campaign gained 25% more profit against its initial investment. For example, if you buy 20 shares for 50$ each, your investment is 100$. Then you sell all the shares for 25$ each, you earn 1250$.
So, ROI = (1250-1000)/1000 x 100% = 25%
- Which digital strategy has the highest ROI?
The most effective strategy for high ROI is email marketing.
Increasing your ROI is the key to expanding and developing your business. So, accurate and precise collection and process of all data are crucial.
Now that you know how to calculate ROI for digital marketing, you'll be able to create better and improved strategies for your campaigns.
Want to know more about ROI and its influence on digital marketing? Get in touch to learn professional-level marketing skills at SharkFold.