How to Calculate Digital Marketing ROI
Prove pipeline impact once and for all with this ultimate guide to digital marketing ROI.
One of the most common issues B2B marketers face is proving digital marketing ROI. We are increasingly tasked with driving more than just leads and awareness. In fact, many marketers are now responsible for delivering impact on business goals like sales pipeline and revenue. It’s therefore not surprising that 61% of marketers in a recent survey said improving their ability to measure and analyze marketing impact was a priority.
Keep in mind that not all marketing campaigns need to prove ROI. Companies like Nike, PepsiCo and Apple aren’t likely to stop their powerful brand campaigns any time soon. These campaigns work – one study found that advertising perceived as expensive and high-quality increased its persuasiveness.
The effects of branding campaigns are extremely long-term and difficult to measure. For digital marketing campaigns, you can use a marketing ROI calculator to prove the overall return on your efforts. And to really prove marketing’s impact on the pipeline, you can connect your campaigns directly to revenue using your ROI ratio and a marketing ROI formula.
What Is a Good ROI Ratio?
The short definition of ROI is the amount of money you spend on a campaign compared with the amount of revenue you earn from it. The simple way to explain how to earn a positive digital marketing ROI is that you need to make more than a dollar for every dollar spent on your campaign. However, the answer to “What is a good ROI ratio?” is more in the range of 5:1, or $5 earned for $1 spent.
That’s because if you sell a product, you also need to factor in the cost of producing the item. The higher your gross margins (e.g. the less it costs you to produce the item), the lower your marketing ROI ratio needs to be. If you sell a service, you likely also have a high gross margin.
The 5:1 ROI ratio is an average for most businesses, but you’ll want to calculate your own specific ratio. The point at which you’ll be able to cover the cost of marketing and creating your product or service will differ for every business.
Marketing ROI Calculator
Want to calculate your overall digital marketing ROI? We’ve created an easy way for you to do just that. Check out our marketing ROI calculator and compare your ROI to industry benchmarks.
Digital Marketing ROI Formulas
You can also use a couple of different marketing ROI formulas to calculate your return. Here’s one you can use to calculate the ROI of a general marketing campaign:
ROI = [((Number of Leads x Lead-to-Customer Rate x Average Sales Price) - Cost or Ad Spend) ÷ Cost or Ad Spend] x 100.
We like this marketing ROI formula because it takes into account how many people converted into leads, then what percentage of those leads became customers, and the average price they paid for your product or service. Then factor in your costs, multiply the whole thing by 100 and you have your ROI.
Another option is to calculate digital marketing ROI in total, rather than by campaign. To do this, you’ll need to know your average organic sales growth, that is, the amount sales grew per month, averaged over one year, without any intervention from marketing. Then you’ll subtract that from overall sales growth for an estimate of how much marketing is affecting sales growth.
ROI = (Sales Growth - Average Organic Sales Growth - Marketing Cost) / Marketing Cost
The marketing ROI formula you choose depends on whether you want to prove the impact of a specific campaign or prove your overall marketing influence.
Factoring in Digital Marketing Costs
One major question you’ll face when calculating digital marketing ROI is: How much did your campaign really cost? Here’s what to consider:
- Time: Time is money. Calculate your employees’ hourly pay times the number of hours they spent on the project.
- Production: This includes supplies, software, or any outside services you needed to hire in order to produce the project.
- Promotion: Ad spend and other promotional costs can be the biggest cost factor in a campaign.
Examples of Digital Marketing ROI
You’ll need to choose which KPIs to track for each channel in your marketing mix. Here are three of the most popular digital marketing methods.
Email remains one of the channels with the best digital marketing ROI: One study found that for every $1 marketers spend on email, they get $42 in return. It’s also a channel that provides plenty of data for businesses that have a properly set up and managed email strategy. You can determine the ROI of specific metrics like open rate, click-through rates, conversions rates, leads, revenue, and more, plus get information on consumer behavior you can use to inform future campaigns.
Your email ROI will depend on:
- The size and quality of your mailing list
- Your targeting strategy
- The effectiveness of your offers and CTAs
PPC is one of the easiest categories to track digital marketing ROI because the platforms that run the ads will do it for you. So what is a good ROI ratio for this category? Google claims an 800% ROI benchmark, but even a lower ratio is outstanding. Make sure you’re avoiding common PPC mistakes and calculating your ROI based on customer lifetime value and not just first sale revenue.
Your PPC ROI will depend on:
- Proper campaign management
- Your ability to monitor and optimize campaigns
- Choosing the right channels and audience
Unlike email and PPC, content marketing pieces like blogs are notoriously hard to connect back to your pipeline. Always use tracking URLs in your blogs for marketing attribution and include CTAs with a clear action that you can connect to lead gen, such as a form fill or gated content.
Keep in mind that a blog is a long-term marketing strategy – rather than calculating the ROI of a single article, you’ll want to calculate the overall ROI of your blog over a month or a quarter or even a year. Once your content is written and published, it can provide leads for months or even years with no additional marketing spend. That’s why a long-term view is so vital for a blog.
Your blog ROI will depend on:
- Your SEO strategy (or lack thereof)
- The strength of your CTAs
- The quality and relevance of your content
There’s a lot to think about when it comes to calculating digital marketing ROI. Luckily, marketing technology is more advanced than ever before. With the right marketing ROI calculator, tools, and knowledge, you’ll be able to prove marketing’s impact on revenue once and for all.