3 Key Numbers To Measure Your ROI on Digital Marketing
Does This Apply To Me?
Scenario 1: You're launching a digital marketing campaign, you want to send traffic from a digital ad to your landing page, and you want to predict what your ROI - if any - will be.
Scenario 2: You've been running digital ads for some time and you're scratching your head why you're not making a return on your investment.
Here's 3 key numbers and only 3 that make the difference on your ROI (return on investment) when it comes to digital marketing.
Yes, it's a math problem, solve the numbers to generate profit.
Click here to try our easy to use ROI calculator.
The Numbers To Calculate Your ROI:
- Budget: how much you’re willing to spend on digital marketing campaigns.
- CPC (cost per click): this is how much it costs to bring a visitor to your website, as you’re paying for each click?
The CPC will vary depending on which platform you’re using, what industry you’re part of, the product you’re selling, its price, and other factors. - This metric is limited in how much you can manipulate.
- Conversion rate: from the users visiting your website, what percentage convert and complete an action / purchase?
Conversion rates usually range somewhere between 1% and 6%, depending on the industry.
- AOV / LTV (average order value / lifetime value): how much revenue on average does each customer bring to your business?
Again, this will vary depending on your industry and prices.
You’ve got those numbers prepared? Great!
How To Calculate Your ROI:
For the easy way click here to try our ROI calculator.
- Divide your budget by your CPC to see the amount of visitors your marketing will generate.
Let’s pretend your budget is $2500 and your CPC is $2. Your site will get 1250 visitors.
- Multiply your visitors by your conversion rate to see the amount of customers you will get.
In our example, 1250 visitors and a conversion rate of say, 5%, would get you 63 customers. (Actually, to be exact, 62.5 customers. But since we don’t know how to halve people, we’ll round it to 63.)
Note: your conversion rate will be a percentage. In order to multiply it, turn it into a decimal number. For example, 5% becomes .05, while 37% becomes .37.
- Multiply your amount of customers by your AOV (average order value) to calculate your revenue.
Let’s pretend your AOV is $150. If so, then 62.5 customers multiplied by $150, will yield $9375 in revenue.
- Divide your revenue by your budget to get the ROI.
In our case, our revenue of $9375 divided by our budget of $2500 gives us a ROI of 375%.
Note: ROI is calculated in percentages. In order to turn the number you get into a percentage, move the decimal point two places to the right. For example, 3.75 becomes 375% while 47 becomes 47%.
Now that you did the math, you can make an informed decision if digital marketing will generate profit for your business. Or if you're already running ads, you can see where you need to improve to make the numbers work in your favor.
Of course, you can tweak the factors as you go along to improve any of these 3 key metrics. To do this easily and without sweat, we recommend our easy to use ROI calculator. It makes it easy to play around with your numbers as you figure things out.