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In This Episode
Put on your thinking cap because this one involves some maths.
Join as Head Ninja Tim provides a quick overview of how to measure and improve your digital marketing ROI (return on investment) across all your digital channels.
We’re also showing you a live client example to walk you through some critical ROI metrics that you should be tracking right now and how you can make smarter decisions based on your ROI performance.
Whether you’re running an eCommerce store or generating leads for a services firm, this episode should help you understand the relationship between your marketing spend and revenue.
Why Is ROI Tracking Important?
It’s simple: your marketing spend has to be justified. It’s a business expense that has to lead somewhere — it can be a sale or a lead, depending on your marketing goals.
In fact, as Tim puts it, marketing without calculating ROI will be like playing sports without keeping score — it just makes no sense.
The great news is that it has never been easier to calculate your marketing ROI. The beauty of digital marketing lies in its ability to be measured, tracked, and improved. If you think back to a time when marketing was done through print, television and radio, it was incredibly difficult to track your ROI accurately. Now it’s just a matter of looking at your site data on Google Analytics.
Here are some of the points we go over in this video.
Digital Marketing Metrics
Before anything else, you first need to have conversion tracking set up on Google Analytics to generate data that you can measure.
From there, you can then track these metrics to know if you’re getting your money’s worth from your marketing.
Before anything else, you first need to have conversion tracking set up on Google Analytics to generate data that you can measure.
From there, you can then track these metrics to know if you’re getting your money’s worth from your marketing.
1. Average Order Value (AOV)
This is the average amount of money a customer spends when they make a purchase on your website. To calculate your AOV, use the formula below.
For example:
- Your site recorded 1,200 orders in April.
- You generated a total of £200,000 in revenue.
- Based on this data and the formula above, your AOV for April was £160.
Knowing your AOV is the first step to getting customers to buy more goods or buy higher-value items every time they shop. This informs your marketing campaigns and helps you direct your attention to strategies that lead to more sales or sales on higher-value items.
2. Average Lead Value (ALV)
If you’re a lead generation business, you’ll need to know your average lead value — the theoretical amount of money every lead generates.
For this metric, simply take your average order value and multiply it by your sales conversion rate — the percentage of leads on your website required to generate a sale.
For example:
- Let’s assume your site’s AOV for leads generated is a broad number — £1,000.
- Your sales team closed, on average, one in five of your leads, giving you a conversion rate of 0.20 or 20%.
- Using the formula above, your ALV was £200.
ALV helps in identifying changes in the number of qualified leads you’re getting from your marketing campaigns. You can use it to determine if your spend on say, paid search, is paying off.
3. Marketing ROI
Now it’s time to bring everything together. Marketing ROI is calculated using the formula below.
For example:
- For the sake of simplicity, let’s assume you had £100,000 in sales revenue in April.
- You spent £10,000 on marketing.
In other words, for every £1.00 you spent on marketing, you get £9.00 in sales.
But what if you also want to know the ROI from your leads? We can use the formula below.
For example:
- Again, you had £100,000 in sales revenue in April.
- You had 180 leads and an ALV of 200
- You spent £10,000 on marketing.
Your marketing efforts in April generated 12.6x ROI in sales and leads generated.
Note that these calculations only account for revenue. In reality, you’ll want to consider profit to know if your marketing activities are truly helping you make money.
Check Out the Episode to Learn More
All this should give you a basic, top-level overview of digital marketing ROI. But you need to dig deeper if you want to make strategic decisions about where to focus your budget.
Should you put your money into search engine optimisation (SEO)? Is paid search the better choice? To know for sure, you’ll need to look at ROI per channel.
Watch or listen to the video or podcast to learn exactly how to do just that. You can also request a FREE review of your website to see get a high-level overview of how to maximise your marketing activities.
Timestamps
00:47 — Introduction
04:20 — Setting up Google Analytics
04:51 — Metrics to consider
04:59 — AOV formula
05:29 — ALV formula
06:51 — Marketing ROI formula
10:29 — Marketing ROI per channel
16:00 — Return on ad spend (ROAS)
18:32 — Organic search ROI
23:18 — Maximum cost per acquisition (CPA max)
26:12 — Attribution models
31:33 — Actionable takeaways
