How to Calculate & Maximize ROI

Jul 30, 2015 | 3  min
author Bonnie Horner
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You’re probably reading this because you’ve been asked “the question” from senior management –

“What’s the value of our digital marketing efforts?”

 
This question is generally followed up with the dreaded statement,

“I just don’t see the ROI.”

 

This question and statement have sent shivers down the spine of digital marketing managers since Myspace was still a thing. The answer to this question is more straightforward than you might think and is much more quantifiable than most senior-level managers want to believe.

Let’s get one thing out of the way – digital marketing, particularly inbound marketing, is one of the most measurable marketing activities at your disposal. Additionally, there are several things that traditional marketing efforts just can’t do. Many of the more “tried-and-true” measures the C-suite has become accustomed to tracking aren’t relevant in today’s connected marketplace. When managers ask for tangible marketing results, they sometimes quote the following outdated metrics that don’t adequately translate to increased sales or performance:

  • Impressions –

    Large scale exposure to advertising is great, but how does this translate to tracking customer progress toward an eventual sale? If 200,000 people see your billboard or print ad but take no action, where is the value? Large impression numbers mean a substantial group of people saw the same marketing message, but you have zero insight into what happened next.

  • AVE (Advertising Value Equivalency) –

    A relic of traditional PR’s heyday, this metric seeks to assign a comparable value to any marketing effort by comparing the cost with how much coverage would cost if it were traditional advertising space or time. What? See impression discussion above. Why should we try to quantify a measurable digital tactic with a static impression number? We should care more about nurturing customers to conversion. How close are we to turning leads into customers? AVE doesn’t have an answer.

  • Short-term profitability –

    Unfortunately, short-term profitability isn’t always an indicator of long-term success. Just because long-term effectiveness is harder to quantify doesn’t mean short-term should take priority. A narrow focus on the “now” ignores your customers’ unique buyer’s journeys. What if your typical customer takes 8 months to nurture? Short-term results won’t accurately account for this.

Defining and calculating digital strategy ROI throws many of these metrics aside and instead starts with your tangible, quantifiable business goals. Let’s build an example ROI model from the customer sales funnel up. Again, digital strategy works best when your primary goal is to move leads from general awareness to paying customers.

To keep things simple, we’ll assume that your CEO wants a 10% increase in sales revenue in the next year and your annual revenue currently totals $20 million. As such, you’ll need to increase your revenue by $2 million.

Now that you have a goal (a revenue increase of $2 million), we have to build a measurable strategy to actually achieve the result. To do this, dive into past performance for a few benchmarks or data points. In this case, we’ll need to find out the amount of new, incremental revenue that new customers previously accounted for. For our example, let’s assume that for the past 2 years, new customers brought $1 million in revenue to the table, which was made up of 5 total accounts, or $200,000 per customer.

Let’s pause here and make a few assumptions. If we think about the past 2 years, each new customer accounted for $200,000 in new revenue. If our goal is $2 million, it seems like we’ll need 10 customers, right? Not exactly. While thinking about your digital efforts, you also need to think about your sales team’s performance and history. In this case, we’ll assume they only close 25% of the opportunities they’re presented. So, you need 40 leads via inbound marketing efforts, right? No, but you’re getting warmer. You still need to consider what research tells us about digital. Many inbound marketing thought leaders estimate conversion to be closer to 10%, or less in some cases.

Now, with an estimated conversion rate of 10%, we’re able to see how much site or landing page traffic we’ll need to generate to show the sort of impact our CEO desires: 400 leads (40*10, assuming 10% conversion rate), from over 4,000 visits annually. This “reverse funnel” framework is an excellent starting point for any digital marketing strategy, especially when establishing goals and trying to determine ROI of your efforts. A word of caution – this conversion rate estimate is fairly conservative and only highlights the need for consistent, meaningful content to drive users to the right web property conversion points. Your industry likely has its own specific online conversion percentage, and effectiveness will depend on your commitment to continually testing and adjusting your strategy.

Example Detail:

Annual revenue: $20,000,000
Goal: 10% ($2,000,000) increase in revenue
Sales opportunities: 10
Team close rate: 25%
New Sales lead opportunity total:  40
Typical online conversion %: 10%
New Online lead opportunity total: 400
Online visits needed from Prospects: 4,000+     

At Pyxl, our team thrives on partnering with clients to discover how to best structure their inbound marketing efforts to deliver maximum ROI. Digital is measurable and specific down to each individual lead. Not sure how to quantify your digital efforts? We’d love to talk to you about how to drive success. Let us know how we can help!

Updated: Nov 10, 2020

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