What Is ROI Digital Marketing, and Why Does It Matter?

In this digital age, marketing is more important than ever. With so many ways to reach potential customers, businesses must find the most effective way to allocate resources. One key metric for measuring the success of a digital marketing campaign is by investigating its return on investment (ROI).

In a nutshell, ROI measures how effective your marketing efforts are in terms of generating leads and sales. The higher your ROI, the more successful your campaigns are. In this short guide, we’ll take a more in-depth look at digital ROI and why it matters for your business.

What Is Digital Marketing ROI?

Return on investment (ROI) is a business metric used to measure, compare and evaluate the relative profitability of investments. In simple terms, ROI is the percentage of an investment’s profit compared to its cost. For example, if you invest $100 in a digital marketing campaign that generates $200 in revenue, your ROI would be 100%. 

You can calculate ROI for any investment, including advertising, website design, and product development. While no strategy is a guaranteed formula for success, understanding and tracking ROI can help you make more informed decisions about where to allocate your resources. 

How Do You Calculate Digital Marketing ROI?

To calculate your Digital Marketing ROI, you need to know three things. The number of leads generated, the lead-to-customer rate, and the average order value. With that information, you can plug it into this formula. 

[(Number of leads x lead to customer rate x average order value) – cost for marketing] / cost for marketing = ROI. The resulting number is your ROI percentage. For example, if you generated 100 leads and your lead-to-customer rate is 10% that means you have 10 customers. 

If your average order value is $100, your total revenue would be $1,000. If it costs you $500 to generate those leads, your ROI would be 100%. In other words, you would have made a profit of $500. 

Top Metrics to Track to Know Your Digital Marketing ROI

Any digital marketer worth their salt knows that ROI is essential to success. But what metrics should you track to calculate ROI? Here are six essential metrics.

Cost Per Lead

This metric measures how much it costs to generate a new lead. To calculate, divide your total marketing budget by the number of new leads generated.

Lead Close Rate

This metric measures how effectively your sales team converts leads into customers. To calculate, divide the number of leads closed by the total number of leads generated.

Cost Per Acquisition

This metric measures how much it costs to acquire a new customer. To calculate, divide your total marketing budget by the number of new customers acquired.

Average Order Value

This metric measures the average amount that customers spend when they make a purchase. To calculate, simply divide your total revenue by the number of orders placed.

Click-through Rate

This metric measures how often people who see your marketing materials actually click on them. To calculate, divide the number of clicks by the number of impressions.

Tracking these six essential metrics will give you a clear picture of your digital marketing ROI and help you make informed decisions about where to allocate your resources. This tracking process is hands down one of the most essential parts of your digital marketing campaigns.

If you’re not already tracking your ROI, now is the time to start. If you need help boosting your ROI or finding a digital marketing agency to do it for you, contact us today. We’d be happy to chat with you about your goals and how we can help you achieve them.