What Is Digital Marketing ROI? (And How to Measure Yours)
Digital marketing ROI is a metric that measures a digital marketing campaign’s return on investment (ROI) — or how much profit your digital marketing efforts generated. Keep reading to learn more about ROI in digital marketing, including how to measure and improve yours!
What is ROI in digital marketing?
Your digital marketing’s ROI is a measurement of your online marketing campaign’s profits or losses, which you calculate with the following formula: (net profit / total digital marketing costs) x 100. Measuring your online marketing ROI helps you determine the effectiveness of your strategies.
Table of Contents
- What is ROI in digital marketing?
- Why is ROI in digital marketing important?
- How to calculate digital marketing ROI
- Why measure ROI in digital marketing?
- How to use Google Analytics and other ROI tracking tools
- What metrics should I track to calculate digital marketing ROI?
- How to measure digital marketing ROI for 5 strategies
- What’s a good digital marketing ROI?
- How to improve digital marketing ROI
- Improve your Internet marketing ROI with WebFX
Why is ROI in digital marketing important?
Tracking your return on investment (ROI) is essential for success with any marketing initiative. Measuring your ROI enables you to determine what’s working and what you can change to improve your results.
In this guide, we’ll discuss how to track, measure, analyze, and improve your digital marketing ROI so that you can run more successful marketing campaigns and grow your business.
How to calculate digital marketing ROI
Most companies measure their digital ROI with the following formula:
(Net profit / total online marketing costs) x 100 = ROI
To determine your net profit, you simply subtract your costs from your revenue. You then divide your net profit by your total costs. To make that number a percentage, multiply that number by 100. Including the net profit calculation, the formula looks like this:
((Revenue – costs) / costs) x 100 = ROI
For example, if you invested $5000 into digital marketing and earned $30,000 as a result, your calculations would look like this:
(($30,000 – $5000) / $5000) x 100 = 500%
An alternative to using a percentage is expressing your ROI as a ratio. To do this, divide your net profit by your cost. That number is your ratio compared to 1. So, for the above scenario, you would divide $25,000 by $5000 to get 5. Your ROI ratio would be 5:1, or $5 for every $1 spent.
If you’re not sure what your revenue or net profit is, here’s how to calculate Internet marketing ROI.
[(Number of leads x lead to customer rate x average order value) – cost for marketing] / cost for marketing = ROI
Here’s what each part of the formula means:
- Number of leads: A lead is someone who expresses interest in your brand, product, or service, making them a potential customer. This number is the number of leads you gained during your campaign.
- Lead-to-customer rate: This is the percentage of leads who became customers. If you had 100 leads, and 30 of them become customers, your lead-to-customer rate would be 30%.
- Average order value: Your average order value is the average amount customers pay for an order. Determining the average helps you account for discounts and varying order sizes.
- Cost for marketing: This is the total amount you spent on your digital marketing campaign. It includes costs such as those of marketing services, ads, tools, and employee salaries.
Say you have 2000 leads, and 40% become customers, spending $100 on average. You spent $5000 on marketing to these leads.
Your calculations would look like this:
[(2000 x 40% x 100) – 5,000] / 5,000
[80,000 – 5,000] / 5,000
75,000 / 5,000
If you multiply by 100 to make that number a percentage, you get an ROI of 1500%.
The most accurate digital ROI calculations, however, come from assessing each strategy and its unique metrics individually. To get more precise ROI numbers, you may need to make some custom calculations, depending on the channels you use and the goals of your marketing campaigns.
For example, if you used PPC advertising, you may want to consider factors such as:
If your goal is to increase sales or revenue, the above formulas are relatively straightforward. However, if your goal is something like brand awareness, you need to consider factors such as brand recognition and mentions. Using the formulas is more challenging, since it’s difficult to assign a monetary value to brand awareness.
Why measure ROI in digital marketing?
Measuring your Internet marketing ROI is important because it tells you what’s working and what’s not. If you don’t measure your ROI, you won’t know if your campaigns meet your expectations or even return positive results. This lack of measurement can result in lackluster results and wasted marketing dollars.
If you measure your digital marketing ROI, on the other hand, you’ll be able to refine your campaigns based on your measurements. For example, if your PPC ads perform much better than your emails, you might decide to focus more on PPC or make improvements to your email campaigns.
Measuring ROI is also crucial for proving your digital marketing campaigns’ success, which helps you secure more funding for marketing.
What tools should I use to track digital ROI?
Most marketers use Google Analytics or a similar platform to track and evaluate their digital marketing efforts. If you don’t yet use Google Analytics, we recommend that you start to get a better understanding of the value of your campaigns.
Whether your company operates in the business-to-business (B2B) or business-to-consumer (B2C) sector, you can benefit from using Google Analytics to track and measure your digital marketing campaigns.
In Google Analytics, you can track:
- Traffic mediums, like organic search, social media, and paid ads
- Traffic sources, like Google, Facebook, or another website
- Bounce rate
- Online conversions
- And more
Essentially, with Google Analytics, you can answer questions like:
- Where does our website traffic come from?
- Which pages get the most views?
- Which pages get the most conversions?
- What are the demographic characteristics of our website’s visitors?
- How do people navigate and explore our site?
- How much website traffic do we get each day, week, month, quarter, or year?
Google Data Studio is a free reporting tool from Google that imports data from Google’s various tools and third-party tools like AdRoll, CallRail, and Bing Webmaster Tools.
With Google Data Studio, you can turn your data into visual reports that quickly summarize your digital marketing performance.
How to use Google Analytics and other ROI tracking tools
Online marketing ROI tracking tools have lots of capabilities that can help you evaluate and improve your marketing campaigns. Here are five tips to help you use these tools to their full ROI tracking potential.
1. Create custom goals in Google Analytics
Making the most of Google Analytics involves making custom goals.
Custom goals allow you to track the actions that matter most to your business, like someone:
- Joining your email newsletter
- Purchasing your product online
- Completing your contact form
When you have custom goals, you can easily measure your site’s performance and return.
Creating custom goals isn’t a confusing process, either. To see your current goals, and add new ones, click on Admin and then choose Goals under the View column. Here’s the page you’ll end up on:
If your business depends on leads, for example, you can base your goals on users reaching your contact confirmation page.
The best part is that you can add a monetary value for goal completions, which can help you put a dollar amount to your strategy’s ROI.
For ecommerce companies, Google Analytics provides a dedicated area for tracking ecommerce goal completions and shopping behavior. To get to this section, click on Conversions > Ecommerce and then choose the ecommerce report you want to view. Here’s the ecommerce overview report.
Here, you can see:
- Shopping cart abandonment rates
- When users abandoned their carts, like during billing and shipping or payment
- Which products earn the most sales and drive the most revenue
- How many views, adds to cart, and purchases a product gets
- How much revenue a coupon code or limited-time promotion generated
- And more
All this data provides your business with immense insight into your marketing campaigns’ performance.
If you send an exclusive $10 coupon to email subscribers, for example, you can track how many readers acted on that offer via Google Analytics.
Set aside some time to outline the actions you want to track, then create them in Google Analytics!
Unsure about setting up Google Analytics and custom goals? WebFX can help!
With WebFX on your side, you’ll have Google Analytics set up in no time. Plus, you’ll have a dedicated account manager that will work with you to create custom goals that track the actions that matter to your business the most.
Just contact us today to learn how our award-winning team can help!
2. Account for multiple touchpoints
Typically, customers interact with your company multiple times before converting. They may, for instance, first hear about your business through a Google search, then read a few blog posts on your site, then see some PPC ads, then finally convert. Sometimes, the customer journey is even longer than this.
A long customer journey makes it difficult to determine how much each touchpoint contributed to the conversion. Marketing tools such as Google Analytics can help you estimate how much each touchpoint contributed to a conversion.
Google Analytics has an Attribution beta feature. You can get attribution data under Attribution as well as Conversions > Multi-Channel Funnels. The program offers several attribution model options, including:
- Last click: Attributes the conversion to the last element clicked
- First click: Attributes the conversion to the first element clicked
- Linear: Gives equal credit to each element clicked
- Time decay: Gives more credit to clicks that occurred closer in time to the conversion
- Position-based: Gives 40% of the credit to the first and last clicks and 20% to the remaining clicks
- Data-driven: Distributes credit based on data from your account, creating a custom attribution model
It’s important to attribute credit for conversions as accurately as you can so that you know how much each channel and campaign element contributed to your ROI.
3. Invest in call tracking software
Does your business get phone calls from potential and current clients?
Then you need call tracking for tracking and measuring your digital marketing efforts.
Call tracking is a valuable tool because it helps you track offline actions, like phone calls, resulting from your online efforts, like SEO.
Remember, everyone approaches shopping differently.
While Buyer A may prefer to fill out your contact form and wait for your response, Buyer B may decide to call your team instead. If you don’t have call tracking set up, you can’t prove that Buyer B found your company online thanks to SEO.
That’s why you need call tracking.
Call tracking works by dynamically changing the phone number on your website based on users’ behavior. Someone who finds your site through organic search, for example, sees a different number than someone who gets to your site through an online ad.
No matter which phone number a person calls, their call gets forwarded to your business.
Many different call tracking solutions are available.
The tools that offer the most value, however, are the ones that integrate with applications like Google Analytics — CallTrackerFX is one example.
That means you can log into Google Analytics and see data related to your phone calls, like how many people called your business during a specific period.
Tools like CallTrackerFX also sync with your customer relationship management (CRM) software, which makes your sales team’s lives easier.
Even better, CallTrackerFX includes call recording and call transcription.
No matter which call tracking solution you go with, it’s a smart and proactive way to track your digital marketing performance and ROI, especially if you’re a lead-based business.
Interested in seeing what CallTrackerFX can do for your company?
Connect with WebFX, and learn how your business can use CallTrackerFX (without the hassle of setting it up) to track your digital marketing efforts and help your sales team close more leads.
4. Set up UTM parameters to track campaigns
An Urchin Tracking Module (UTM) parameter is another excellent way to track your online marketing results.
UTM parameters include:
- Campaign source
- Campaign medium
- Campaign name
They appear at the end of a URL, like “https://www.example.com/?utm_source=source-name&utm_medium=medium-name&utm_campaign=campaign-name.”
Google offers a free tool for generating UTM parameters (and auto-adding them to your URL), so don’t worry about creating your UTM parameters manually.
With UTM parameters, you can track:
- User behavior
- Campaign performance
- Traffic referrals from other sites
- And more
For example, your business could use UTM parameters to track, measure, and organize the traffic that comes to your site through specific initiatives, like email marketing.
You could track this data down to the individual email sent, too, which provides you with even more data and insight into your efforts.
The best part is that your UTM parameter data goes to your Google Analytics account, which helps you make Google Analytics your dedicated space for monitoring and measuring your digital marketing campaigns.
UTM parameters do require some time and organization because you want to ensure accurate tracking and analysis. Working with a digital marketing agency like WebFX gives you all the benefits of UTM parameters without the work.
Your dedicated account manager takes care of mapping, creating, and setting up your UTM parameters. You can then check the data in Google Analytics — or have your account manager analyze and break down the data for you.
5. Build dashboards to track strategy performance
Digital marketing brings your business a lot of data, especially when you have tracking mastered.
The problem, however, is working through all that data to:
- Determine ROI
- Find opportunities for improvement
- Discover which strategies perform best
That’s why businesses use dashboards.
Digital marketing dashboards serve as a handy tool for tracking and summarizing your digital marketing performance. They compile all your data into bite-sized chunks that offer quick answers to the questions decision-makers ask most, like:
- Which channels drive the most leads, sales, or revenue
- What is the ROI of our different marketing channels?
- What is our website’s overall conversion rate?
- Which pages have the highest conversion rates?
You can often customize your dashboards, too, which can help you focus on the online marketing metrics, channels, and actions that matter most to your company.
While you can use Google Data Studio to create your business’s marketing dashboards, it’s a time-intensive process to build your dashboards and organize your data. Keep in mind that if you import a significant amount of data, Google Data Studio can become sluggish.
That’s why companies will generally invest in a marketing platform that includes reporting dashboards, like MarketingCloudFX.
MarketingCloudFX is handy because it compiles all your marketing data, from search to email to social, in one place.
In addition to a main dashboard that summarizes your efforts, this proprietary and AI-powered software also provides specific dashboards for each channel.
Dashboards make your life easier. In an instant, you can show teammates and company leaders how a strategy, like content marketing or email marketing, impacts your bottom line. Plus, you can quickly assess a strategy and spot opportunities to improve it, like by A/B testing your email subject lines.
What metrics should I track to calculate digital marketing ROI?
You calculate digital marketing ROI using two primary metrics — the cost to do something and the outcomes generated.
When calculating the ROI of your online marketing efforts, it’s important to track and measure metrics that directly tie to revenue, profit, and other actionable metrics that relate to the goals of your business. These Internet marketing metrics include things like leads, conversion rates, and customer lifetime value.
Here’s a look at some useful metrics for calculating Internet marketing ROI.
1. Cost per lead
If you’re collecting leads as part of your marketing campaign, you’ll want to calculate cost per lead, which is how much it costs you to acquire each lead.
To determine cost per lead, you can divide your total marketing costs by the total number of leads you gained due to your campaign.
Comparing your cost per lead to what each lead is worth to you will tell you whether you’re getting a positive ROI.
Cost per lead formula
Ad spend / number of attributed leads = cost per lead
2. Lead close rate
Do you know how many of your leads become customers? This metric is known as your lead close rate or conversion rate.
This metric is important because your leads only provide you with financial value if they close. Determining how many leads you need to close to achieve your ROI goal helps you set goals for your sales team.
It can also indicate the quality of the leads you’re attaining. If you have a low lead close rate, you may want to consider adjusting your targeting to attract better-qualified leads.
It’s also helpful to evaluate your lead close rate by channel, device, demographic characteristics, and other factors. Segmenting your leads can help you determine which channels and audience to focus on to get the best return on investment.
Lead close rate formula
Conversions / number of leads = lead close rate
Conversion Rate Calculator
3. Cost per acquisition
Your cost per acquisition is how much it costs you to get a sale. Calculating cost per acquisition will tell you how much you need to make from each sale to achieve a positive ROI.
To calculate this metric, divide your total marketing costs by the number of sales you earned.
Cost per acquisition formula
Cost of advertising / number of conversions = cost per acquisition
CPA using CPC
4. Average order value
As you saw in the earlier section about how to calculate online marketing ROI, knowing your average order value can help you calculate your ROI.
You may also want to keep track of your average order value so that you can set goals for increasing it. Even increasing your average order value by a small percentage can result in a significant increase in revenue.
Average order value formula
Revenue / number of orders = average order value
5. Click-through rate
To calculate your CTR, divide your total clicks by the total number of impressions, which is the number of people who saw your ad or organic search listing.
Total number of clicks / total number of impressions = CTR
If your CTR is low, you may need to adjust your targeting or change your copy or design. Higher CTRs tend to correlate with higher ROI.
6. Customer lifetime value
To get an accurate picture of your ROI, you need to determine your average customer lifetime value (CLV), which is how much a customer is worth to your company over the total amount of time they’re a customer.
Without CLV, if you spend $100 marketing to someone and converting them into a customer, and they make a purchase worth $50, you might think you had a negative ROI. But if they make five $50 purchases over the next 10 years, that’s a very different story.
Keeping CLV in mind can also help you keep your marketing costs down. It costs businesses 10 times more to acquire a new customer than to retain an existing one, and CLV helps you focus on the entire lifetime of your customer relationships rather than just individual purchases.
If you calculate your average CLV, you have a more accurate idea of how much you can spend to acquire each customer while still achieving your ROI goals.
To calculate your CLV, you can use the following formula:
(Average annual revenue from a single customer x the number of years someone typically stays a customer) – your cost per acquisition of one new customer = CLV
So, if a customer typically spends $100 per year and remains a customer for 10 years, and your cost per acquisition is $200, your calculations would look like this:
($100 x 10) – $200 = $800
How to measure digital marketing ROI for 5 strategies
With traditional marketing strategies, you pay to reach a broad audience, whether that’s the viewers of a TV show, the subscribers of a magazine, or the residents of a particular postal code. It can be challenging to measure the effectiveness of these strategies since you can’t directly track who takes action after seeing an advertisement.
On the other hand, online marketing allows you to use tools like Google Analytics and MarketingCloudFX, which let you monitor, measure, and improve nearly every aspect of your campaigns.
Let’s take a look at some high-yield Internet marketing strategies and how to measure the digital marketing ROI of each:
1. PPC advertising
Pay-per-click, or PPC, is an advertising model in which you can target search engine users based on the words and phrases they search.
Here’s an example of PPC ads on a Google search engine results page (SERP):
With Google Ads, you can research potential keywords, choose the most effective ones, and determine how much you’re willing to pay for each click.
You can also integrate your Google Ads account with your Google Analytics account to evaluate what site visitors do after clicking your PPC ads and how your PPC advertisements help you reach your goals.
For example, let’s pretend your primary goal is to sell a product that costs $200, and you run a PPC campaign with a cost per click (CPC) of $2.00. If 100 people click your ad and 10 people make a purchase, here’s how you calculate your ROI:
- 100 people x $2.00 = $200 spend
- 10 people x $200 = $2000 return
To calculate your online marketing ROI, you can use the standard formula of (Return-Investment)/Investment.
So, in this case, (2000-200)/200 = 9, meaning that your ROI would be 900%.
Of course, the digital ROI from your PPC efforts will depend on the quality of your campaigns. But since you can quickly and easily calculate your PPC ROI, you can allocate more spend to the campaigns that drive the greatest results and improve the ones that don’t.
Like PPC advertising, you can easily calculate the digital ROI of your search engine optimization (SEO) efforts using Google Analytics.
All you have to do is navigate to the Acquisition tab, select All Traffic > Channels, and then click “Organic Search.”
If you set up custom goals in your Google Analytics account, you can see conversions. You can also integrate Google Analytics with your site’s ecommerce platform to calculate the exact value of sales.
Let’s continue with the example above. If your site generates 50 sales per month from organic traffic, each of these sales is worth $200, and you pay an SEO agency $1000 each month for their services, let’s take a look at your ROI.
- 1 month x $1000 = $1000 investment
- 50 sales x $200 = $10,000 return
Your online marketing ROI, in this case, would be 900%.
Keep in mind that if your business operates on a B2B model, you might not have direct ecommerce sales to measure. However, you can still easily calculate online marketing ROI if you know the approximate value of each of your leads.
You can also use Google Analytics to set up goals for form submissions, quote requests, free trials, and more. And assigning monetary value to these goals can help you see how much revenue your SEO strategy generates for your company.
3. Content marketing
Content doesn’t cost much to create, and you can continually update it with relevant information to meet the needs of your niche.
To calculate the digital ROI of your content marketing efforts, it’s helpful to look at a few key Internet marketing metrics:
- Consumption: Page views, unique visitors, downloads, time on site, bounce rate, cost per visitor
- Sharing: Number of times content has been shared or linked across the web or on social media
- Lead generation: Form or email address submissions, guide downloads, opting into email campaigns
- Sales: Number of deals you close that you can attribute to content on your site
You can also use Google Analytics to evaluate key performance indicators (KPIs) including:
- Web traffic
Calculating the exact ROI of a content marketing strategy is challenging, since most visitors won’t convert after reading just one page. Using attribution models can help you understand its impact on your business.
That being said, if you’re getting more website visitors and conversions since implementing a content marketing strategy, and you’ve noticed an increase in revenue, your content marketing ROI is likely positive.
It’s important to remember that content marketing is a long-term strategy, and your one-time investment in creating it can produce results for years to come. It needs time to grow and mature, and you’ll often see the best results months or even years after you publish.
4. Email marketing
You can also use Google Analytics to track the digital ROI of your email marketing campaigns.
To do this, you just need to select “Email” as your channel in Google Analytics, look at the value of your goal completions, and compare this to your monthly spend on email marketing. Then, you can use the main ROI formula to calculate your return.
Depending on whether you use an email platform with a monthly fee or hire writers to create your email content, your email marketing cost could range from a few dollars to a few thousand dollars each month.
With tools like EmailMarketingFX, you can analyze key digital marketing metrics like open rates, clicks, and unsubscribes to continually improve your digital marketing ROI.
5. Social media marketing
Like other online strategies, you can use Google Analytics to track website traffic, on-site conversions, and sign-ups that originate from social media campaigns. And you can track social media interactions (shares, likes, follows) with tools like Buffer.
Then, you will need to determine the value of each new customer who clicks through to your site from social and makes a purchase.
For example, let’s say it costs $0.50 to gain a new Facebook follower and each new social customer is worth $5.00. If you gain 10 new followers, and they all purchase from your site, your ROI would be 900%.
You can also use in-platform analytics on sites like Facebook and Twitter to measure the success of social media ad campaigns. This will allow you to easily determine how much you’re paying per impression or click and adjust your spending to improve your results.
What’s a good digital marketing ROI?
In general, an Internet marketing ROI ratio of 5:1 is considered good for most businesses, with 10:1 being excellent. These are general guidelines, and your company’s ROI goals will vary depending on numerous factors.
What makes a good marketing ROI for your company depends, in part, on how much it costs you to produce or acquire your products. For most companies, you’ll need a marketing ROI of more than 2:1 to cover the costs of both your marketing and producing the goods you sell.
Companies with higher margins — the costs of producing goods compared to your sales price — don’t need as high of a marketing ROI ratio to break even or return a profit.
How to improve digital marketing ROI
Now that you know your digital marketing ROI, how can you improve it?
These tips can help your business get the most value (and best return) from online marketing:
1. Use data to inform decisions
Today’s companies have access to more data — and more tools for analyzing that data — than ever before. You can use this digital marketing data to calculate your ROI and use your ROI-related data to make more informed decisions.
Get the tools you need to collect marketing data, like Google Analytics, and set up processes for collecting and analyzing it. Then, use that data to inform your decisions, produce better results, and improve your Internet marketing ROI.
2. Establish ROI goals
If you want to improve your online marketing ROI, it’s helpful to set well-defined goals. Establishing goals gives you something to aim for, helping to guide your efforts.
When setting goals, make them SMART goals to increase your chances of success. SMART goals are:
- Specific: Make your goals as descriptive as possible. For example, instead of setting a goal like “increase ROI,” set a more specific goal to “increase ROI by 50%.”
- Measurable: Set up a process for measuring your progress toward your goals.
- Achievable: While your goals can be ambitious, make sure you can realistically achieve them.
- Relevant: Make sure your ROI goals are relevant to your broader business objectives.
- Time-bound: Set a time limit on your goals to provide motivation and accountability for achieving them.
Also, keep in mind that ROI goals vary from business to business. Goals differ based on your past ROI performance, your costs, and other factors.
3. Avoid vanity metrics
It’s important to stay away from vanity metrics that don’t correlate to numbers that matter. While vanity metrics make your marketing efforts look good, they don’t contribute to your actual website objectives.
Some common examples of vanity metrics include things like:
- Site visitors
- Social media followers
Instead, focus your attention on engagement metrics that relate to ROI, tell you what content drives results, and reveal opportunities for growth.
Engagement metrics include things like:
- Repeat page views
- Conversion rate
- Comments per post
4. Use marketing automation tools
Marketing automation tools can help you accomplish more with less, reducing your costs and increasing your digital marketing ROI. That’s a big part of why the marketing automation market is expected to be worth $6.4 billion by 2024.
Consider investing in marketing automation tools and services. They help with completing repetitive tasks, organizing your data, segmenting your audience, sending emails, and much more.
Email automation tools like EmailMarketingFX, for instance, allow you to set up email marketing campaigns that automatically send emails to prospects at certain time intervals or send an email when a user completes a certain action on your site. These same tools can help you segment your email subscriber list and track the results of your email campaigns.
5. Test and adjust your campaigns
Digital marketing offers many opportunities for testing aspects of your campaigns and then using your findings to improve them. You can test nearly every aspect of a campaign, from your copy to your page design to your targeting to the channels you use.
A/B testing is one of the most useful testing methods available. You can run A/B tests with a free tool called Google Optimize.
This approach involves creating two versions of an ad, landing page, or other campaign element. You then show the different versions to two groups of users and track performance to see which version works best.
You then keep the winning version and move on to testing another element of your campaign. With this approach, you can continually improve your campaigns and get better ROI over time.
Improve your Internet marketing ROI with WebFX
WebFX is an award-winning Internet marketing agency, and we can help you improve your digital marketing ROI with custom digital marketing plans and our marketing automation platform, MarketingCloudFX.
We offer a full suite of digital marketing services, including:
- SEO services
- PPC advertising management services
- Content marketing services
- Email marketing management services
- Social media marketing and management services
- Conversion rate optimization services
- And more
Plus, our MarketingCloudFX platform helps you track your ROI and offers AI-powered recommendations for improving it.