How To Calculate ROI for Your Online Campaigns
Whether your business is big or small, you want to see an increase in customers and purchases for any online campaign. That’s one key goal of marketing, afterall.
But do you know what an ROI—or return on investment—really is for a digital marketing campaign or how to calculate it? In this article, we’re exploring returns on online marketing investments.
We’ll show you what an ROI means for an online campaign, metrics to calculate it, and even how to calculate ROI on social media and SEO campaigns so you can take steps to maximize returns.
Return on Investment – ROI Definition
Before examining metrics and the different ways to tell if your online marketing campaigns are bringing in solid returns, let’s go back to business 101 and define ROI.
In most business areas, a return on investment acts as a simple performance metric. It tells you efficiency and profitability of any investment and allows you to compare it to other investments. It tells you what you get back relative to the cost.
Return on Investment – ROI Formula
The traditional formula to calculate the return on an investment is ROI = Value – Cost. If you want to reflect that as a percentage, then just divide that number by the cost again.
A simple, straightforward example using an online campaign could be that you spent $1,000 on Google Ads to feature a new t-shirt and sold 100 shirts for $1,200. In that case the direct ROI was $200 and the percentage is 20%.
What is ROI (Return on Investment) for Online Campaigns?
With online campaigns the definition changes a little bit.
Granted, you’re still measuring the profits or losses generated from the campaign based on the money invested. And it’s still a way to tell if you’re getting value from your online marketing campaigns. Also, let’s not forget ROI will tell you what needs to improve and where you need to take action with your campaigns.
But what about the other aspects of online campaigns?
What if the point of your Google ad wasn’t to sell shirts but to bring awareness to your brand? Or perhaps the campaign was just meant to gently guide them into a digital marketing funnel.
What if you did an email campaign instead? Or how about just updating the SEO on your site? How can you tell what equated to a return just because you optimized your page a little better?
How to Calculate ROI – Return on Investment for Online campaigns
For online campaigns you can still use a general formula to calculate the overall marketing ROI. Just divide your net profit by the cost of all your online campaigns within a specific time period. If you want a percentage, just multiply that number by 100. The ROI calculation formula is:
(Net profit / Total Cost of Online Campaigns) x 100 = ROI of Online Campaign
However, that doesn’t really answer those other questions about brand awareness, conversions, or marketing funnels. To fully get a visual on the ROI for your online campaigns, it’s important to look at other metrics than straight revenue.
Return on Investment – ROI Online Campaign Metrics
Let’s examine some of the other key metrics that companies can measure around online marketing campaigns.
- Cost per Lead
Let’s say the goal of your online campaign was to capture leads. From there, you want the sales team to take over and do the rest. Then the ROI measurement isn’t going to focus on profit or revenue, it’s only focused on the leads.
To calculate cost per lead (CPL) divide the total ad spend of a specific campaign by the total number of leads. So if you spent $10,000 on Google Ads and netted 100 leads then the CPL is $100.
CPL = Ad spend / Leads
If after netting those leads you find that they don’t spend as much as it cost to bring them in, then you don’t have a positive ROI investment. In that case, it’s time to look into some growth marketing tactics to examine your audience and bring in higher qualified leads.
- Conversion Rate or Lead Close Rate
Speaking of quality leads, as stated, leads only generate revenue if they close—make a purchase. Conversion rates tell you how many leads became customers. And your conversion rate is a key number that can let your sales team know how many of those leads they need to close to generate a positive ROI. If your sales team isn’t closing the leads, from a marketing standpoint, it’s time to look at the quality of the leads you’re generating.
Also, if you look at your conversion rate based on channels, demographics, devices, etc., it can help you to segment your marketing efforts and optimize your campaigns for maximum ROI.
For example, if you generated more leads from social media than from an email campaign but closed twice as many leads via email, it’s more cost efficient to invest in email than social media campaigns.
To calculate your conversion rate, divide your conversions by your leads.
Conversion Rate = Conversions / Leads
- Customer Acquisition Cost and Cost Per Acquisition / Action
Don’t mistake these two metrics. They’re in the same category because they’re related and—like growth hacking vs growth marketing—they’re often confused as the same metric. So let’s clear things up and tie them back to ROI.
The customer acquisition cost (CAC) measures the cost it takes to convert someone into a paying customer, or into a sale. This means they’re paying something into the business. For ROI, this is an important metric because if your CAC is less than your customer lifetime value—see below—then the business will eventually fail. Here’s the formula:
CAC = Total marketing spend / number of customers
On the other side, your cost per acquisition or cost per action (CPA) measures the cost it takes to acquire a potential customer or to take an action. It’s a measure meant for specific campaigns and helps to clarify your CAC and ROI. These acquisitions aren’t leads either because they haven’t been qualified, so don’t confuse the metric with CPL. Here’s the formula;
CPA = Total campaign spend / number of acquisitions
Let’s use Netflix as an example to distinguish CAC, CPL, and CPA. If a potential customer signs up for Netflix’s free month trial, that’s a CPA. There’s no qualification to that acquisition, so they’re not a qualified lead. When they become a paying subscriber, they move into the CAC metric.
From this example, it’s easy to see how all of these metrics tie into a full evaluation of the ROI of an online campaign. The more acquisitions you get, the more you can qualify them, and from there they can turn into paying customers. Each of these steps factor into a customer lifecycle or buyer’s journey and will tell you how much bang you’re getting for your marketing investment.
- Customer Lifetime Value
The customer lifetime value (CLV) is the average amount a customer will spend in their lifetime with your company. This metric clears up the confusion between short-term and long-term ROI and helps companies see the big picture with their campaigns.
If you invest $100 per individual in an online campaign, but only get $75 back, then in the short term, it seems like this is a bad number for ROI. However, if that customer is going to come back twice per year for the next five years and spend $75 each time, then that wasn’t a bad ROI for the campaign.
Calculating CLV can be difficult, but let’s look at a simple formula:
CLV = (average annual revenue from a single customer x average lifetime of a customer) – CAC
Note: If you want a more precise formula, Hubspot can help you go down the customer lifetime value rabbit hole.
- Average Order Value
A company’s average order (AOV) value can tie to the production side of things or the marketing, but we’ll focus on the marketing side here. The AOV is an indicator of how much your customers spend when they place an order. The formula is:
AOV = Total revenue / number of orders
It’s great to get tons of orders, but if the value of those orders is very small, then you’re not getting much ROI from your online campaigns. In that case, it could be beneficial to invest in campaigns for products that will help your AOV, like upsells or cross-sells.
Return on Investment – ROI SEO
With the other metrics covered, let’s look at calculating ROI for SEO campaigns. It’s not as difficult as it seems, but it will require the help of Google Analytics.
When you open the Google analytics page for your site, navigate to see your ‘organic searches’. Customers who come to your site as ‘organic customers’ arrived at your site via an unpaid search link—the best result of good SEO.
With Google Analytics, you can set up custom goals to monitor your conversions from organic searches, and you can integrate Analytics with most sales tracking platforms to better understand the value of your conversions.
Moving on, if you have 100 sales every month as the result of organic traffic, and those sales average $15,000, and you pay $1,000 monthly for someone or an agency for SEO, let’s look at the ROI equation (without production costs):
Net Profit ($14,000) / Cost of campaign ($1,000) x 100 = ROI (1,400%)
Many B2B businesses can’t calculate sales directly, and that’s where knowing your average lead value comes into play.
Return on Investment – ROI Social Media
Social media campaigns are like SEO campaigns in that they require the help of Google Analytics to get an ROI analysis. You can set up Google Analytics to track conversions that originate from social media sites within the platform and then use the standard ROI formula for online campaigns.
But with social media, it’s essential to take things a step further and use a great social media analytics tool like Sprout Social or Buffer. With those tools, you can measure things like likes, comments, followers, etc.
Those metrics allow you to set a number on what it costs to get a follower or impression. And from there you can calculate that number against the average spend rate of your social media customers and weigh that against what you’re spending on social media campaigns. And voilà! You have your ROI.
Online Marketing ROI – Return on Investment Conclusion
At this point, hopefully your head isn’t hurting from all the math. As stated, calculating the ROI marketing numbers for online campaigns isn’t as simple and straightforward as calculating ROI for traditional investments.
But if you need ROI solutions and help accelerating the growth of your business, why not work with a global digital business acceleration office like Upthrust? We can help your business implement growth marketing processes and train your teams on those tactics.
There are a lot more metrics out there that can make a huge difference in your bottom line, and Upthrust can help you use them to your advantage!
Do you want to know how we can maximize the ROI for online campaigns with your Business ? Plan a FREE strategic session HERE!