The return on investment (ROI) for digital marketing strategies can vary depending on a lot of factors like industry, target audience, budget and objectives. But, there are some of the most commonly used digital marketing strategies and their usual ROI. They are-
- Search Engine Optimization (SEO) – SEO is the process of optimizing your website to enhance its ranking in search engine results pages (SERPs). The ROI of SEO can be significant because higher ranking in SERPs can lead to increased website traffic, increased leads, which finally gets converted to more sales.
- Pay per click advertising (PPC)- PPC advertising involves payment for ads that are located at the top of the search engine results pages (SERPs) or on other websites. The ROI of PPC can also be significant, as it enables the user to target particular keywords and audiences.
- Social Media Marketing- Social media marketing includes utilizing social media platforms such as facebook, twitter, instagram for promoting their brand and engage with customers. The ROI of social media marketing can be tough to measure, however, it can lead to enhanced brand awareness, customer engagement, and finally increased sales.
- Email Marketing- Email marketing includes sending promotional emails to a list of subscribers. The ROI of email marketing can be significant, as it enables the user to target a particular audience and track the performance of their campaigns.
- Content marketing- Content marketing includes creating valuable content such as blog posts, videos, and infographics in order to attract and engage customers. The ROI of content marketing can be significant, as it can assist the user to establish their brand as an authority in the industry and gain more website traffic. It is extremely important to note that these figures are just averages, and the actual ROI of the user’s website can vary depending on multiple circumstances. Additionally, it is vital that the user has a clear understanding of their objectives and to track the results so that they can adjust their strategy as required to optimize their ROI.
Understanding ROI in Digital Marketing
ROI in digital marketing is the measurement of revenue that is generated from a digital marketing campaign as compared to the cost of the campaign. In simple terms, it is the measurement of the return on investment made in a digital marketing campaign. ROI can be utilized to measure the efficiency of different types of digital marketing campaigns which includes email marketing, social media marketing, search engine optimization and pay per click advertising.
Necessity of ROI in digital marketing
ROI is important in digital marketing as it provides assistance to businesses in understanding the profitability of their marketing efforts. It assists businesses make informed decisions regarding their marketing budget and strategy. If a digital marketing campaign is not able to generate positive revenue, the it might not be worth continuing. In this case, the business might have to re evaluate their strategy. Calculating ROI in digital marketing allows businesses to observe which campaigns are generating the maximum revenue, which channels are the most efficient, and which campaigns are required to be adjusted or discontinued.
Ways to Calculate ROI in Digital Marketing
Calculating ROI in digital marketing is a completely straightforward procedure. The formula for calculating ROI is –
- ROI= (Revenue-Cost) / Cost
In order to calculate ROI for a digital marketing campaign, the user needs to determine the revenue generated by the campaign along with its cost.
Calculating revenue – The revenue that is generated by a digital marketing campaign can be decided by tracking the amount of conversions, like sales or leads, that are generated by campaigns. The revenue generated is the total value of the conversions multiplied by the average value of each conversion. For instance, a business generated 50 leads from a PPC campaign, and the average value of each lead is $100, then the revenue generated by the campaign is $5000.
Calculating cost – The cost of a digital marketing campaign includes all expenses that are associated with the campaign. It includes advertising costs, salaries, and overhead costs,etc. For example- if a business spent $2000 on a PPC campaign, involving advertising costs along with salaries, the cost of the c campaign will be $2000.
Putting it all together
By utilizing the revenue and cost figures, we can now calculate the ROI for the digital marketing campaign. Let’s utilize the figures and statistics from the previous campaigns-
- ROI = (Revenue-Cost)/ Cost
- ROI= ($5000-$2000) / $2000
- ROI= 1.5 or 150%.
The ROI for the PPC campaign will be 150%, which means that for every dollar spent on the campaign, the business earned $1.50 in revenue.
Factors affecting ROI in digital marketing
A lot of factors can impact the ROI of a digital marketing campaign. Below is a list of the most crucial factors to consider –
- Target audience- The target audience is a necessary factor in deciding the effectiveness of a digital marketing campaign. In case, the campaign is not targeted towards the right audience, then it will not generate the desired outcome.
- Type of campaign- Different types of digital marketing campaigns have different ROI rates. For example- PPC advertising campaigns ten to have higher ROI rates as compared to social media marketing campaigns.
- Marketing budget- The marketing budget has a significant role in the ROI of a digital marketing campaign. A higher marketing campaign budget can result in a higher ROI. However, it is necessary to ensure that the budget is utilized efficiently.
Different forms of ROI
There are multiple types of ROI that are utilized to measure the performance of an investment. Some of the most commonly used forms of ROI include –
- Simple ROI- Simple ROI is calculated as the ratio of net gain over the initial investment. This type of ROI is useful for comparing investments having similar time frame and risks.
- Total ROI- Total ROI takes in account the net gain from an investment, along with any extra benefits like dividends and interest payments. This form of ROI is useful for evaluating the overall return on investment.
- Internal Rate of return- IRR is a more complex ROI calculation that takes into account the timing anand magnitude of cash flows that are associated with an investment. IRR is useful for evaluating the investments having uneven cash flows, like those with various stages of investment and reinvestment.
- Time weighted ROI- Time weighted ROI takes into account the changes in the value of an investment over time and is extremely useful for evaluating investments that have a large initial investment and various stages of reinvestment.
- Equity ROI- Equity ROI measures the ROI based on the equity that is invested in a project or asset, and is most commonly used for evaluating investments of real estate, or private equity investments.
Conclusion
Each form of ROI provides a different perspective on the performance of an investment, and its importance to opt for an appropriate ROI calculation for the investment form being evaluated.
ROI is a critical KPI in digital marketing that assists businesses in measuring the efficiency of their digital marketing campaigns. It enables businesses to make informed decisions regarding their marketing budget and strategy. Calculating ROI is a simple procedure, however it requires accurate tracking of revenue and costs. By understanding the factors affecting ROI and utilizing strategies to enhance it, businesses can optimize their digital marketing campaigns for maximum profitability.