If you want to streamline your business growth, you need to learn how to track your marketing ROI to evaluate the impact and profit of your marketing campaigns so that you can allocate your marketing spend more effectively.
And yet, determining ROI in digital marketing is notoriously difficult.
I get it. It’s not always simple to determine whether a blog post converted a prospect or an Instagram reel led to a sale.
And sure, ROI isn’t everything…
Creating a memorable brand and building relationships matters, too.
That said, if you want to make smarter decisions, you’ve got to know your numbers. And that means tracking and optimising your marketing ROI.
Luckily, tracking ROI on digital marketing doesn’t have to be complicated. In this article, I’ll break down the process at its most basic level, so you can start to scale your business more quickly and profitably.
What is ROI on digital marketing?
How much revenue do you earn for every dollar spent on marketing?
That’s your marketing ROI, the return on your marketing investment.
Put another way, marketing ROI is the amount of revenue you generate from specific marketing channels compared to the marketing cost. You’ll typically see ROI expressed as a percentage.
When you calculate your marketing ROI, you determine if your marketing efforts are effective (aka, profitable.)
It sounds easy, yet 61% of marketing leaders don’t use ROI to make decisions because they aren’t confident in their data. And, as you now know, that’s a problem if you want to strategically distribute marketing spend…
So, let’s explore a few simple ROMI formulas to help you better understand your campaign success.
Note: Marketing ROI is often referred to as ROMI (return on marketing investment.) For the sake of this article, we’ll use marketing ROI and ROMI interchangeably.
ROMI Formulas: How to calculate marketing ROI
If you’re just beginning to track your marketing ROI, you might start with this basic formula:
ROMI = (marketing revenue – marketing spend) / marketing spend x 100
Say your business did $100,000 in revenue attributed to your marketing initiatives. You spent $25,000 on paid social and content creators. That means your ROMI was 300%.
Of course, the numbers aren’t always this straightforward…
That’s when I like to use this slightly more detailed ROMI calculation from Hubspot:
ROMI = [((number of leads x lead-to-customer rate x average sales price) - cost or ad spend) ÷ cost or ad spend] x 100.
To use this ROMI calculation, you’ll need to know:
1. Lead-to-customer rate: What percentage of your leads convert?
2. Average sales price: How much does your average customer spend?
Imagine you run a Facebook ad for a week. Over the week, you get 100 leads — 20 of which convert to customers. The average price of your product is $50. You spent $500 to run the ads. What is your ROMI?
Feel like you’re back in high school maths? Stay with me for a moment…
[((100 x .2 x $50) - $500) ÷ $500] x 100 = 100% ROMI
If you’re conducting a brand awareness or lead generation campaign, you can use your organisation’s average conversion rates to better understand your ROI.
There are still other methods for calculating marketing ROI. So, if you have a different formula working for your company, great!
How you calculate ROI on digital marketing isn’t necessarily important. What matters is that you consistently apply the same method across all your marketing channels.
ROMI formula factors to consider
Customer Acquisition Cost (CAC): How much do you spend to acquire a new customer? This KPI informs your marketing so that you can better understand your costs and overhead. Generally speaking, the lower your CAC, the more effective your marketing.
Customer Lifetime Value: What is the average lifetime value of a customer to your organisation? The longer a customer buys, the greater your profits — and the higher your ROMI.
Wondering what other KPIs you need to track to grow your business quickly? I outline the most important digital marketing KPIs you must track here.
What is a good ROI in digital marketing?
Many businesses consider 5:1 to be a strong marketing ROI. In other words, for every $1 you spend, you get $5 back. Anything below 2:1 is typically not profitable.
Here’s what I want you to remember…
Every company is unique. Your ROMI might be vastly different from a company in another industry, and that’s okay.
It’s also essential to use attribution models so that you can weigh the success of each campaign based on its efficacy. That means no longer guessing which initiative gets conversion credit — and instead using the data to make informed strategic decisions.
For example, you might find organic search has an ROI of 500% while your pay per click ROI hovers around the industry average at a whopping 800%.
Finally, create benchmarks for your marketing ROI.
Benchmarks help you understand your unique growth while accounting for fluctuations. They answer the question, Where are you now compared to where you were? Look at your return compared to similar campaigns you’ve implemented in the past.
As you track and analyse your ROMI over time, you’ll have more optics with which to work — and that means more insights into the overall efficacy of your marketing campaigns.
How to improve your marketing ROI
You’ve done the calculations, and your ROI on digital marketing isn’t looking so hot… Now what?
Start with these easy tips to improve your ROMI: