If you’ve been a member of the 60 Second Marketer community for any length of time, you know that we talk about how to calculate the ROI of your digital ad campaigns pretty regularly. It’s an important metric. That said, it’s not the only metric.
With that in mind, here’s a guest post with a new take on an old concept — how to tell if your digital marketing campaign is a worthwhile investment.
You’d be hard pressed to find a company that doesn’t use the term ROI at least a few times when measuring the performance of their company’s latest marketing efforts.
It’s the buzzword being used by marketers and executives alike. It makes sense, since company leaders are always looking for measurable goals with number values attached.
This may come as a shock to some readers of the 60 Second Marketer blog, but a positive ROI isn’t the only metric worth measuring when determining the effectiveness of a digital marketing campaign.
It’s important that companies include ROI in their analysis of marketing effectiveness. But the conversation will come a little later than many companies think. The problem is that many young businesses are simply applying the principles too soon or incorrectly.
The most important thing to recognize is the distinction between an expense and an investment. An expense refers to the immediate cost of your marketing efforts, while an investment refers to a large expense that will eventually grow into a profitable outcome.
Many companies use the term ROI a little too loosely. They use it to explain the fact that their profits aren’t quite matching their expenses.
The best way to understand the difference between an expense and an investment is to consider an example. If you’re a retail store, your most common expenses will include things such as labor costs, utility expenses, cost of goods sold, depreciation, and rent.
These aren’t considered wasteful spending by any means, but they don’t typically bring back direct positive returns, just because you put a down payment on them.
Investments, on the other hand, include things such as marketing, blogging, giveaways, savvy sponsorship, and other business activities that will bring more attention to your brand.
When these techniques are applied to solve a real problem for customers, companies soon see a return on the money they invested in the form of conversions and sales.
People will come to your store because they saw an advertisement for a sale, or perhaps because they found a blog post you wrote to be useful, which will indirectly result in sales and increased revenue.
It’s only with investments (as opposed to expenses) that you should consider ROI. That said, ROI is a highly complex term that involves a series of metrics and data collection in order to achieve an accurate measurement.
There’s no single number used to quantify ROI, even though that seems like the easiest way to do it. Instead, it’s a ratio in which you divide net revenue by cost. This will reveal the marginal returns, which is much better when indicating the the success of your campaign.
Using the Right Metrics
Too many marketers ask the wrong questions about whether their marketing strategies were worth the effort. They ask, “Did it work?” When they should be asking, “Will it work?” It’s much harder to get an accurate depiction of your future marketing success if you focus solely on the past.
Instead, consider the metrics, trends, and predictions revolving around your current marketing efforts.
Are you treating your spending as an expense or an investment? Are your conversions improving at a steady pace? Is there anything that would get in the way of marketing success? Does your marketing campaign need to evolve with current trends? In many cases, the key to understanding the effectiveness of a promotional investment lies in asking the right questions.
If you’re using the right metrics effectively, you’ll probably be focusing on a few different things. Specifically, you’ll concentrate your efforts a little less on the numbers that are coming in immediately, and a little more on metrics that measure customer engagement, including:
Social Shares: This is perhaps the best way to know that your marketing tactics are working. When consumers are interested in your content, they’ll share it. You can use the number of social shares across various social platforms to get a good idea of what your readers like and what they don’t like.
Successful marketing strategies will get thousands of shares, while lesser strategies will only get a few. You can use this collection of data to plan your content shares accordingly.
Time Spent On Site: Another positive indicator of customer approval is the time they spend on your website. You’ll know pretty quickly if a customer has no interest in your website based on the time they spend there.
Heat Maps: Another aspect of measuring customer engagement with your website is calculating where they spend the most time. Heat maps use colors to demonstrate where the cursor spent the most time on a certain website. Your hope is that the consumer will have spent time looking at product descriptions and calls to action. The actual results of your data will show where changes need to be made in order to make the content worthy of customer engagement.
Bounce Rate: This metric is discussed less often nowadays, but it’s still an important measurement for determining the effectiveness of your marketing strategies. Getting people to visit your website is only a small part of the battle. Getting them to stay there, look through multiple pages, engage with advertisements, and eventually make a purchase is the ultimate goal.
If your bounce rates are high, your return on investment will be low. It’s a fairly simple give-and-take concept that can mean a lot for your overall customer engagement.
Conversion Rate: Rather than measuring how much a customer spends based on your marketing efforts, measure how many customers made a purchase. If your marketing efforts are successful, you’ll be looking at conversion rates of at least 5 percent. Anything lower than that calls for a change in approach.
Inbound Links: The main goal of your content marketing strategy should be inbound links. These links create conversions, brand awareness, and result in overall higher profits. The more high-quality inbound links you have, the higher your rankings and online credibility. Each of these factors influences your brand’s general appearance in the industry and ranks your company higher on search engines.
Search Engine Traffic: Though this metric doesn’t always refer directly to your profits, it indirectly influences your overall returns. Google, Bing, and Yahoo! will refer users to your website based on a number of criteria that matches search results.
If you’re steadily climbing up the ranks and receiving unique visitors as a result, you know your marketing investment is paying off. If your ranking is stagnant and site visitation is slow, you know it’s time for a change in your search engine optimization strategy.
Each of metrics above measures something much more powerful for your business than clear monetary returns.
They measure customer engagement, which will create more leads, customer retention, and higher profits, as indirect results.
Asking the right questions and focusing on the right metrics will help your business determine the difference between an expense and an investment. Overall, putting more attention on customer engagement and related metrics will drive your company to get more results from your digital marketing strategies than you would get by focusing directly on profits.
Positive ROI Doesn’t Always Mean Maximum Returns
Perhaps the most common misconception with positive ROI is that high profits are necessary for success. Obviously, the goal of your marketing efforts is to gain a high return on investment, but that doesn’t mean you’ll see a fat wad of cash in return.
This doesn’t mean that you should continue spending when your ROI consistently drops, though. You need to be savvy with finances, but you can also lose some of your profits in order to make your investment more beneficial.
Entering the prospect of advertising with this school of thought, and measuring your marginal investment rather than your overall investment will give you more accuracy in measurements. Before long, the marginal returns will continue to grow, and your digital marketing efforts will continue to expand right along with them.
Action steps for you.
All in all, measuring your overall return on investment isn’t bad. It’s actually very useful for budgeting purposes to ensure that your money isn’t being misspent. But it’s more important to consider the amount of engagement you’re receiving from consumers than it is to just consider the monetary returns. Those will come in time, but if your customers aren’t engaged now, you won’t see those returns later on, and the investment will have been a waste.
Digital marketing works. That’s why the majority of businesses make the investment in digital marketing and spend 25 percent of their marketing budget on such. However, it may not work as quickly as you think. The time it takes to see results can diminish significantly if you have patience and focus on the metrics behind the return, rather than the ROI alone.
Larry Alton is an independent business consultant specializing in social media trends, business, and entrepreneurship. Connect with him on Twitter and LinkedIn.
