Digital Strategy

How To Calculate Return On Investment For Digital Marketing

Before you commit your hard earned dollars to any digital marketing activity, it’s important that you are able to calculate the ROI to determine whether the marketing activity is worthwhile continuing.  

What Is ROI?
Let’s start with the basics. ROI means ‘Return on Investment’ and it is a formula that allows you to calculate how well your digital strategy and marketing activities are performing. Typically you’d calculate it across quarters, to give your activities time to bring revenue results.  

How to calculate ROI?
Digital Marketing ROI is no different from any other marketing activity and so the formula you use to calculate the ROI should be exactly the same. To quote the Run DMC, it goes a little something like this…  

ROI = (Revenue Made – Cost of Marketing Investment)        
             Cost Of Marketing Investment  

What is a good return on investment will vary by industry to industry, but the key thing you’re looking for is a positive number. We would recommend calculating this at least every quarter and adjusting your strategy accordingly – looking to see which channels and tactics are bringing you the best result in terms of money spent versus money gained.  

Forecasting or Projecting Your ROI
Now you know what ROI is and how to calculate it, the next step is to begin forecasting it prior to committing your marketing budget to new activities. As this is a forecast, it would be wise to create a range, based on assumptive numbers rather than sticking with one calculation. Look upon it as the good, the bad and the ugly.   In order to forecast you’ll need to get some placeholder figures to plug into your calculation, such as:  

– Average Sale Value
– Average Return Customer Frequency
– Average Existing Conversion Rate  

A Forecast ROI Example
Suppose your existing website conversion rate is an average 1.84%, your average sale value is $100 and customers typically return to you once per quarter.   Now let’s say that the marketing activities you are planning to engage in will bring 1000 new visitors to your site per month.

Your additional revenue calculation would be:  
1000 new visitors x 1.84% conversion rate = 18.4 extra customers per month
Average sale value $100 x 18.4 customers = $1840 extra revenue per month
Extra Monthly Revenue (1840) x 12 = $22,080 extra revenue per year
Customer Return Frequency every 3 months = $16,560 extra revenue from repeat purchases
Total Extra Revenue over 12 months: $38,640  

Now calculate the cost of your digital strategy and marketing activity – $10,000 across the year for example, and then apply the formula:  
ROI = (Revenue Made – Cost of Marketing Investment)         
             Cost Of Marketing Investment  

ROI = (38,640 – 10,000)          
             10,000   ROI = 2.86  

We hope our explanation on Digital Marketing ROI was helpful, if you’ve got any other questions, reach out to us in the comments or drop us an email