Most website or business owners do not have a problem tracking standard web metrics such as visits, orders, click-through-rate, unique visitors, etc. Whether it comes to paid search or SEO, it may be more beneficial for you to dig deeper for more useful metrics. According to a post at eMarketer, only 53% of respondents believe that ROI is very important. I was surprised by this number because understanding ROI can completely change your marketing strategies. Simply looking and orders and cost, you are not fully understanding your total investment.
I understand that with organic search this number is difficult to gauge 100% because some sales obviously could have been driven without SEO or with prior efforts. With paid search, ROI is a vital metric, and easily tracked.
ROI, or return-on-investment is simply calculated as:
ROI = [(Payback - Investment)/Investment)]*100
Your payback number would be considered the amount of money earned from your efforts. Let’s assume over the course of 1 month you earned $10,000 from a paid marketing campaign. Your investment would be the amount of money or resources you put into the efforts. For example sake let’s assume you spent $4,000 in the search engines and you hired an outside contractor to manage the campaign at $2,000. Because you hired an outside firm your total investment for this strategy is $6,000 (Budget + Management Fee). Your ROI for this specific strategy was 66.6% based on the below calculation:
[($10,000 - $6,000)/$6,000)]*100 = 66.6%
It is important to include all resources invested into the project to get an actual number. This would mean if the strategy was handled in house you would include salary paid to whichever team member handles the account, software or equipment purchased for the specific strategy, and if you are the business owner, include your own time too, because after all it is one of your business’ resources.
So what if you are not able to track revenue through your website analytics because you are focusing on driving leads or soft conversions? ROI can be much tougher in these instances because it is difficult to truly understand your payback. The best way to handle this situation is to understand the value of a lead. This will vary from business to business, and is often not easy to calculate. There are many factors that you can consider when calculating the value of a lead such as quality, life time value, seasonality, profitability etc. For the ease of better understanding ROI, let’s use a simple calculation to determine a lead’s value: Average Revenue per Sale/percent of leads converted to sales. While this calculation is perfect by no means, it will allow us to show ROI in a lead generation situation. To calculate based on our simple lead value calculation our new ROI formula would look like this:
ROI = [({Value of Lead*Number of Leads} – Investment)/Investment]*100
Again, while the lead formula is flawed and doesn’t take into consideration what happens after the lead or profit, it at least gives you an idea in calculating ROI without a direct “payback” number. Sadly, too many businesses are ignoring ROI when it should be one of the most important metrics of any marketing strategy online or offline. Using these simple calculations you can have a better idea of what your marketing ROI actually is.
