How do you measure the ROI of your digital marketing strategy?
Fortunately, these days there are several technological tools that allow us to calculate the ROI of your marketing program in a very precise way. Gone are the days of talking about impressions, clicks and click-through rates (CTR)… if your current agency is only talking about impressions and clicks, it should definitely raise a red flag in your mind because your agency is only measuring the tip of the iceberg and that has very little value. In the web world, when talking about ROI for a digital marketing program, it is imperative to evaluate and compare the different KPIs (Key Performance Indicators).
What are the important KPIs in digital marketing?
Here are some general performance indicators in digital marketing:
THE NUMBER OF CONVERSIONS:
The objectives called conversions can be several actions that a user has performed on the website or with advertising campaigns such as :
- A call;
- A form;
- An email;
- A purchase;
- A subscription to a newsletter;
- A software subscription;
- An answer to a questionnaire;
- Installation of an application;
- Creating an account;
- Making an appointment;
- And so on.
The quantity in terms of number of conversions is a performance indicator. In order to accurately measure the number of conversions, the Google Analytics platform can be configured and the conversion elements can be created with the Google Tag Manager platform.
How to increase your number of conversions?
A first element to increase the number of conversions is to increase your number of visitors (traffic) on the site. In this context, several digital strategies can be put forward. A second element that is just as important is your conversion rate. Increasing your conversion rate will also increase your number of conversions.
THE CONVERSION RATE :
The conversion rate is the percentage (%) of the number of visitors who have reached a goal on a website (which can be called a conversion) in relation to the total number of visitors on the website and during a chosen period. With the help of a small calculation you can obtain your conversion rate: simply divide the number of visitors by the number of conversions and then multiply this figure by 100. Measuring the conversion rate as a performance indicator allows you to check if your website or your pages have the elements to make visitors take action and achieve your goals.
What are the average conversion rates in B2C, B2B and by industry?
The conversion rate in B2C is between 1.4% and 6.25% while the conversion rate in B2B is between 2.23% and 11.70% according to statistics from WordStream on Google Ads. It should be noted that the digital source bringing the visitors can influence the conversion rate.
Is it more important to increase the number of visitors (traffic) or to improve the conversion rate?
You want to increase your number of conversions and your first thought is that you need more visitors on your website. In theory, if you increase your traffic, you will increase your conversion rate. However, this assumes that this traffic will have the same conversion rate as the previous visitors. You should not only consider the quantity of visitors but also the quality of visitors which will influence the conversion rate. The equation (3 times more visitors = 3 times more conversions) is therefore false.
In order to maintain a high conversion rate when you increase your visitors, it is essential to improve the user experience on your site, to optimize the quantity and quality of content in your pages and during the user's journey on your site. We are now talking about user user experience optimization (UX).
By keeping the same advertising budget, optimizing and improving your conversion rate also allows you to increase your conversion number. For example, by increasing your overall conversion rate from 3.0% to 3.2%, your conversion rate can increase by 10% for the same advertising budget.
Cost per lead (CPL) :
Cost in marketing to generate a lead (potential customer). The cost per lead is a KPI that measures the performance of digital campaigns. It means knowing how much it actually cost you in monetary investment to acquire a lead. When calculating the CPL, it is important to take into account the direct and indirect costs of digital campaigns. The formula for calculating the CPL is relatively simple: Total marketing investments / Number of leads. This KPI then allows you to assign a monetary value to the leads and make decisions about the allocation of your marketing investments among the digital channels.
Customer acquisition cost (CAC) :
Marketing cost to acquire a new customer. The calculation of the cost of acquiring a customer is obtained by: total marketing investment over a period / total number of customers acquired over the period. Thanks to this performance indicator, it is possible to launch highly targeted campaigns and monitor the results. This KPI also allows you to make comparisons and to know which types of strategies are the most profitable. This KPI also allows us to question our value proposition. An inadequate value proposition of your products or services in relation to your market can lead to a high CAC.
Customer Lifetime Value (CLV):
The value in monetary terms of a customer over his or her lifetime as a customer in the company. That is to say, during the average time that a company keeps a customer. The formula to calculate the CLV can vary but the simplest is: Customer Lifetime Value = (average sales value) x (average number of sales) x (average duration of the customer relationship).
How can you use CLV in your marketing strategies?
An interesting use is to compare the lifetime value of the customer to the cost of acquiring the customer. More precisely, the sum of the financial amounts obtained by a customer VS the sum of the financial amounts invested in order to acquire this customer. In fact, the calculation of the CLV can even determine the maximum CAC, the limit of monetary amounts in digital marketing that you are willing to invest in order to acquire new customers. It is also important to look at your customer retention rate and the elements that influence this retention rate. This will have an important impact in the average duration of the customer relationship influence the CLV.
RETURN ON INVESTMENT (ROI)
For each dollar invested in marketing, what are the amounts in terms of sales generated by these investments. The ROI of your marketing strategies allows you to calculate the profitability and the monetary amounts you generate with your digital marketing initiatives. The ROI is an essential calculation to evaluate the overall performance. Also, this calculation allows you to compare the effectiveness of several marketing strategies and tools, to evaluate their profitability for each dollar, to decrease the risks of investing in bad strategies and to maximize your profits and financial returns. The variables of this calculation are: the financial benefits of investing in the strategies and the costs in terms of monetary investment in the strategies. The calculation is therefore: ROI = (Profits - Investments) / Investments.
Choose the right KPIs for your business
Choosing the right KPIs for digital marketing is not a one-time decision. The best KPIs to track for one business are not necessarily the same for another. To choose the best KPIs for your business, you need to evaluate your goals and work backwards to then define them. Whatever KPIs are most useful, they must meet the SMART criteria. The KPIs you track must be: Specific, Measurable, Achievable, Relevant and Time-bound.
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