Posted on: 21-12-2022 by WEB-ROI
Your marketing efforts act as a bridge between your business and your customers. It’s a way to inform potential buyers of how your products and services can help them while providing them with the tools to make the right decisions for their needs. The strength of that bridge solely depends on the foundation you build and the regular upkeep you put in.
The more you invest in strategic marketing efforts, the more likely you’ll reach a highly converting audience. The increase in business you get is, therefore, your return on investment.
In this article, we’ll explain why a good return on investment is necessary in marketing, how to calculate it and what you can do to maximize your returns even more.
Your advertising ROI, or return on investment, is the increase in revenue you receive directly from paid advertisements. At a basic level, it is a calculation of what you get out vs what you put in.
In the digital marketing world, you may hear terms like PPC ROI or CPC ROI. These are your pay-per-click or cost-per-click ad returns.
Generally, the value will be expressed as an average percentage. We’ll discuss this calculation more in-depth below.
There are many reasons for determining your advertising or marketing ROI. For one, it directly impacts your profits. By carefully minimizing your ad spend while maximizing sales, your business gets to pocket more of the resultant revenue.
Your ROI will also tell you other important data, such as which advertising platforms are worth spending more on. Additionally, you’ll learn more about the level of competition in your niche and more effective strategies for targeting the right audience. As part of a marketing team, you may also want to justify your ad spend to leadership. Decent ROI numbers can help you do that.
Marketing ROI formulas can get complicated. However, by homing in on a specific marketing area, such as your digital ads, you can get a clearer picture of the true ROI for a given advertising platform.
If you use Google Ads, you’ll be pleased to know that Google provides a simple and straightforward ROI formula for their ads.
According to Google, ROI = (Revenue – Cost of Goods Sold) / (Cost of Goods Sold).
That is, you’ll want to take your total revenue that resulted from your advertisements, subtract your business’s costs to produce and advertise the goods sold and divide this number by the same overall cost of goods.
For example, let’s say you sell candles for $10 each, but it costs $4 to make one. You’ve put out a Google ad for these candles that cost $200, and directly from that ad’s clicks, you’ve sold 100 candles. Your Google Ads ROI average will then be calculated as follows:
Total revenue from the ad: 100*10 = $1000
Costs associated with the product: $4*100 + $200 = $600
ROI Formula: (1000-600)/600 = 67%
If you’re looking to extend the calculations above to a whole marketing campaign, then you can apply a similar formula as was provided for Google Ads.
Say you want to calculate the total return on investment for a campaign that includes multiple types of ads in various locations. Perhaps you’ll be adding up the costs of PPC ads, social media ads, influencer marketing and more. The most basic way to calculate the ROI of a marketing campaign is to integrate it into your business’s overall profit calculations.
Simply take the sales growth from the product or service line being marketed, subtract the marketing costs, and then divide by the marketing cost.
The formula is, therefore: ROI = (Sales Growth – Total Marketing Cost) / Total Marketing Cost
So, if sales grew by $5,000 and all marketing efforts cost $1000, then the ROI is 400%.
This is an extremely simplified calculation, but it provides a basic idea of your specific campaign’s ROI.
To get the most accurate estimate, ensure you track all relevant metrics such as leads, sales, CPC rates and more through tools like Google’s conversion tracking tool.
Google Ads’ ROI average is around 200%. That means, for every $1 investors put into Google advertising, they get $2 out of it. That’s a strong ROI, so if your numbers aren’t quite reaching those metrics, you’ll want to tweak your campaign in the following ways:
If you’re looking at how to improve ROI for Google Ads, then keywords should be your main focus. Analyze keyword trends closely and drop any that are poor performers. Start centering your ad content on the top keywords for your niche that are also priced reasonably.
Are you targeting the right audience? Better yet, is the audience you’re hoping to reach even interested? Maybe you need to tweak your ad locations to better suit a demographic, or perhaps you should conduct further market research to get a better idea of who will benefit from your goods the most. With highly targeted campaigns, you’ll generally see better CPC returns.
Just like regular keywords help point searchers to your ad, negative keywords keep your ad away from the wrong audience. If there are specific niches or audiences you want to avoid, then make sure to compile a list of negative keywords as part of your search engine marketing strategy.
Optimizing your digital marketing campaigns may feel like a daunting task, and to be honest, it’s often a full-time job on its own. That’s why seeking professional guidance can help you maximize your returns while freeing up your time to do what you do best.
At Web ROI, we can help you master PPC ads and digital marketing to ensure better visibility, higher quality leads and more traffic overall. Contact us today to make us your digital marketing partner.
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