What is a Good Digital Marketing ROI For Your Business?
Return on investment (ROI) is the key overarching metric that businesses use to understand what they are getting out of their digital marketing efforts. Your digital marketing ROI tells you whether or not your online strategies are paying off. Like a sophisticated race car, strategic, ROI-driven-digital marketing is intuitive, adapting to unforeseen bumps in the road and producing real results, in real time.
With this information, you can see more clearly as you set a course to drive revenue and hit your targets. When you have a gauge of your marketing ROI, you can make decisions to stop doing what doesn’t work and shift your attention to what does. ROI-related metrics help you better understand your customers and how they respond to different marketing approaches. Measuring ROI can let you know if you’re getting the results that you should be from your digital marketing. So, what kind of ROI is considered good? We’ll explain below.
How to Calculate ROI for Digital Marketing
First, you need to know how you can calculate the ROI from your marketing efforts. The formula is simple. You take the increase in revenue attributed to the marketing efforts you are measuring and subtract the cost of the marketing. Then you need to divide that number by the cost of marketing again, which gets you the return per dollar.
ROI = (Increase in Revenue - Cost of Marketing)/(Cost of Marketing)
This gives you a number you can use to compare to other marketing methods that might cost radically more or less.
So, if you spend $200 on a Pay-Per-Click (PPC) campaign that produces $2,000 in revenue, your ROI is $10. You earned ten dollars in revenue for every dollar you spent on the campaign.
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What is a Good ROI for Digital Marketing?
A good ROI depends on your goals, however, there are some basic figures that can help you determine what those goals should be. For starters, an ROI of $2 for every $1 spent is not profitable. It may seem like putting one dollar into marketing and getting double back is good, but almost all businesses have more overhead that will immediately eat up that extra dollar.
Typically, an ROI of $5:$1 is considered good. This is enough for most businesses to see profits, again depending on overhead and other factors.
Time is another thing to consider when assessing whether your ROI is producing winning results. Maybe your business model relies on long-term customers who keep buying from you over time or have contracts with you for years. If so, the value of that customer over the long-term may be much higher than the current ROI indicates. Where possible, include the value of contracts. Or do a separate ROI calculation with an estimated customer lifetime value included.
Other Digital Marketing ROI Benchmarks
At first, most marketing ventures have negative ROI. They may take some time to get established and start creating profit. A website or a vehicle wrap are both good examples. You pay a lot of money up front, and the asset generates business for you slowly over time.
You can use other benchmarks to see how your digital marketing efforts are progressing, even before they have created a positive ROI. But watch out for common speed bumps and be careful not to substitute the following benchmarks for real ROI over time:
- Impressions
- Click-through-rate
- Engagement rate
- Cost per lead
- Cost per acquisition
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