ROI + Other Acronyms For Digital Campaigns
"Anything worth doing is worth doing well." I love that quote, but how do you know if something is worth doing? How would you determine if an action has value? The most straightforward answer for an organization would be to determine how much money you make when you invest in an effort. In the good ol' marketing world, we'd call that the Return on Investment (ROI) of a specific business effort.
All marketers work to prove their value, but digital marketers have the advantage of data and attribution. Advanced tracking allows us to report the number of eyeballs that have seen an ad, how many times they've seen it, where and how they've seen it. More than that, we can measure what happens when an ad is seen. How long was a video viewed? Was it clicked on? Was a purchase made? How much was that purchase worth?
The Importance of Pixels
Placing tracking codes/pixels on your website allows you to gather the information to answer the above questions. It opens a line of communication between the platform your ad is delivered on and the website that the audience takes action on afterward. It is not enough to count conversions as they happen; the real gold is tracing the conversion back to its source. Accurate attribution, giving credit where credit is due, is key to measuring ROI in digital marketing.
ROI and Other KPIs For E-Commerce
With proper tracking implemented, you can measure what value an ad has created. For e-commerce businesses, this means revenue. So long as you are able to measure and attribute revenue to ad campaigns, these metrics will measure their success:
- Cost per Conversion - This metric shows how much you spent to generate a purchase. You're aiming for this number to be less than the average order value.
- Conversion Rate - This metric shows what percentage of purchases out of the total ad impression. A higher conversion rate indicates more effective creative. WordStream put some awesome industry benchmarks together for Google Ad Conversion rates. Here are some industry benchmarks for Facebook.
- Return on Ad Spend (ROAS) – ROAS is one of the most popular metrics. This metric shows your return your ad spend. This ratio tells you how efficient it would be to increase the paid spend budget for a campaign.
- Return on Investment – To find your fully-loaded return on investment, you'd need to include your entire dollar invested (ad spend, management cost, software cost, creative cost, etc.,) and how many dollars came back in revenue? This ratio takes into account the overall investment on the campaign. The goal is for this ratio to be at least 1 or greater.
Calculating ROI When a Conversion is not a Purchase
I know what you're thinking. Ecommerce is easy, but our conversion is not a purchase, how the heck do I evaluate my ROI? In most non-e-commerce businesses, your conversion could be a form submission, downloadable, phone call, etc. To calculate an ROI, you should start by assigning a value to that goal. A phone call could be worth $20, $1, $10k. You don't need to assign these values blindly, use the metrics you have available. If it takes 10 calls to close a $100 sale, then each equals around $10. Go through each conversion type you want to track and assign a corresponding value. You can assign those values in Facebook, Google Analytics, and your other conversion tools so that they will calculate the value for you!
Another important metric is your Customer Lifetime Value (CLV). This metric definitely takes some time and fine calculation to determine, but it's totally worth it.
Once you know your CLV and the average number of leads, calls, or submissions it takes you to convert one customer, you can determine how much money you should be willing to spend on getting more of those conversions.
There are many ways that social media provides value to a business, many purposes for digital ads beyond driving revenue. But conversion campaigns are my personal favorites because they so clearly drive real-world results for our clients. If you are looking for help implementing a tracking system, developing a creative concept, or managing ongoing campaigns, I want to help! Reach out to begin a partnership with Chatterkick and see what social can do for your business.