Last Updated on May 31, 2022 by Maria James
Return on Investment is the greatest approach to linking digital investment to performance (ROI).
Digital marketing expenditures should be viewed as legitimate investments. The returns on these investments are determined by the performance of these initiatives.
To get the most out of your advertising initiatives, it is essential that you maintain a close eye on the digital marketing return on investment.
This article discusses all of the essential indicators for determining marketing return on investment.
8 Criteria You Need to Analyze to Determine the ROI
1. Cost Per Lead (CPL)
Cost Per Lead (CPL) is a return on investment (ROI) statistic for digital marketing that calculates the entire cost required to obtain individual leads via sponsored promotions. It is only possible to measure sponsored advertising and not organic search campaigns.
Here is the formula to calculate the lead cost or you can try SEO cost calculator.
Cost per lead = Total Marketing Expenditures / Number of New Leads
For example, if a firm spends $20,000 on marketing initiatives and generates 2,000 leads, the cost per lead is $10.00.
Here is how the CPL is determined:
CPL = $20,000 / 2,000
CPL = $10.00
Important Factors To Keep in Mind:-
In order to reduce the cost per lead, your marketing initiatives must emphasize audience targeting. The more precisely an audience is targeted, the greater the likelihood of obtaining high-quality leads at a significantly reduced cost.
2. Cost Per Acquisition (CPA)
CPA is an ROI indicator for digital marketing that indicates the total cost spent on obtaining a new client.
Cost Per Acquisition refers to the expenditures involved when acquiring a lead in order to convert that lead into a legitimate client. It is computed to determine the efficacy of your marketing initiatives.
Here is the formula for calculating Acquisition Cost.
Cost Per Acquisition = Total Marketing Expenditures / Total Customers Acquired.
For example, if a business spends $10,000 on marketing efforts and acquires 1,000 clients, the cost per acquisition would be $10.00.
The Cost Per Acquisition is determined as follows.
CPA = $10,000 / 1,000
CPA = $10.00
Similar to the cost per lead, the effectiveness of cost per acquisition depends on the accuracy of your audience targeting.
Here, however, other expenditures enter the picture that was not there while computing the cost per lead.
The additional expenditures encompass all indirect expenses incurred as a result of transforming them into clients.
3. Unique Monthly Visitors
Unique Monthly Visitors refers to the number of individuals who visit your website in a certain time period, often a week or a month.
This statistic is important for the investment and strategy teams when monitoring the brand’s reach, analyzing the competition, and calculating the marketing campaign’s effect.
There is no obvious technique for calculating Unique Monthly Visitors, however, this data will be accessible through Google Analytics.
In addition, you may divide the unique monthly views by devices, locations, and time periods.
4. Average Order Value (AOV)
AOV is a digital marketing ROI indicator that evaluates the average amount spent each time a customer puts a purchase through a mobile application or a website.
Here is the formula for determining the Average Order Value.
Average Order Value is Total Revenue divided by the Total Number of Orders Received.
For example, a firm generates $100 in annual sales and receives 98 orders in the same year. Therefore, the typical order cost would be $1.02.
Here is the formula for calculating the Average Order Value.
AOV = $100 / 98
AOV = $1.02
Utilizing methods such as upselling, cross-selling, free shipping, volume discounts, coupons, return policies, and contributions can boost the average order value.
One of the most effective methods for implementing these ideas is to divide your consumers into identical groups based on their buyer personas and behaviors.
5. Return on Ad Spend (ROAS)
Return on Ad Spend (ROAS) is a digital marketing return on investment (ROI) statistic used to quantify the income gained on your ad spending before subtracting the cost of products sold (COGS).
ROAS is one of the most valuable measures for allocating marketing funds to digital platforms.
Here is the method for calculating Return on Advertising Spending.
Return on Advertising Spending = (Total Revenue / Total Advertising Spending) * 100.
For example, if a business makes $1000 in revenue after investing $500, the ROAS would be 200%.
Here is how to calculate the Return on Advertising Spending
ROAS = ($1000 / $500) * 100
ROAS = 200 percent
The unique value and significance of ROAs are that they aid in evaluating the effectiveness of your advertising activities.
When paired with customer lifetime value (CLV), it gives vital information on future budget patterns, guides overall marketing, and aids in the formulation of strategies.
6. Customer Lifetime Value (CLV)
Client Lifetime Value or CLV refers to the total amount of money a customer is anticipated to spend on your products or services over the course of their lifetime.
Here is the formula used to compute Customer Lifetime Value (CLV).
Customer Lifetime Value = (Annual Revenue of a Customer * Number of Years in Customer Relationship) — Customer Acquisition Cost
For example, a business makes $1000 per client per year with an average customer lifetime of 5 years. Each consumer has cost them a total of $1000 to acquire. Therefore, the company’s client lifetime value would be $4000.
Here is how the Customer Lifetime Value is calculated.
CLV = ($1000*5) — $1000
CLV = $4000
Creating a loyalty program, enhancing customer relationship management, and focusing on your most important clients are just a few strategies to boost customer loyalty.
Utilizing the effectiveness of upsells and cross-sells might also work to your advantage.
7. Lead to Close Ratio (LTCR)
The lead to close ratio is a digital marketing return on investment (ROI) indicator that represents the proportion of leads that actually convert.
You must recognize that acquiring high-quality leads will pave the way for effortless conversions.
If you have perfected the art of targeting, you will convert many prospects into clients.
Here is the formula for calculating the Lead-to-Conversion Ratio.
Lead to Conversion Ratio = (Total Number of Closed Leads / Total Number of Sales Leads) x 100
For instance, if 100 sales leads are produced but only 75 are turned into clients, your LTCR would be 75%.
Here is the formula for calculating the Lead to Cost Ratio.
LTCR = (75 / 100) * 100
LTCR = 75 percent
Typically, the Lead to Closing Ratio is generated to evaluate the success of your sales team and guarantee alignment between the marketing and sales departments.
8. Average Position
Average position is a metric that tells you how your keywords are usually ranked by your search engine.
It is the total number of impressions multiplied by the average position index.
With an average position of 1, all of the keywords you used in your content are ranking higher.
If you see changes in the analytics that you don’t like, you can change the parts of your campaigns to make them work in the way you want them to.
– Source Link – https://digitalmediatrends.medium.com/metrics-to-calculate-your-digital-marketing-roi-25c0d1bb67f