ROI for your marketing campaign is a more complicated process than calculating financial ROI.
For one, what you spend on a marketing campaign may return brand awareness, website traffic, content engagement, video views, and brand value instead of just incremental financial revenue. That gives you a lot of data to utilize. One of the biggest challenges to marketing ROI is that you may only see financial returns over a long-term timeframe since you’re building brand value.
However, digital marketing makes it easier to calculate marketing ROI. Since ad managers such as Google AdWords and Facebook Ads Manager track internet users’ activity around ad campaigns, measuring marketing ROI has been streamlined. Here’s how you can measure marketing ROI and showcase it to your clients with projections:
1. Determine the key performance indicators for marketing ROI
If you own an eCommerce business where ad platforms such as Facebook Ads Manager can track your website activity, sales included, you can do away with looking at only one metric:
- Return on Ad Spend (ROAS).
Source: Social Media Examiner
Using website trackers such as Facebook Pixel, your ad manager can show you the amount and the total number of sales generated by your ad campaign. The amount generated through this campaign is called the Return on Ad Spend, or ROAS.
If your marketing campaign generated $100 in sales for your client, your ROAS is $100 minus the ad spend for that campaign. So, if your client’s total sale from the campaign is $100, and your ad spend is $40, your ROAS is $60. Usually, your ad manager of choice calculates this for you and your client in real-time.
Long story short, that’s how you find the marketing ROI. The same idea applies to the App Downloads metric for apps using a paid downloads monetization model. But I still encourage you to read further.
Unfortunately, not every eCommerce business may have a positive return on its marketing investment.
That’s why you’d want to look at other metrics directly correlated with purchasing rate, such as:
- Ad click-through-rate – People who have clicked on the link to your website through an ad.
- Add to cart rate – People who have visited your website and added something to their cart.
- Checkout rate – People who have added something to their cart and proceeded with checkout.
These KPIs will help you pinpoint where the gap is. If people see your ad but only 0.3% click-through it, that may mean your ad isn’t engaging enough. Or, if only 5% of people with items in their cart proceed to checkout, that may mean your shipping fees are too high.
KPIs for Non-eCommerce Businesses
However, not every business is an eCommerce platform.
There’s no instant way for ad managers to track revenue and directly calculate ROAS for non-eCommerce or non-app businesses. How would ad managers know that ten customers ordered breadsticks from your restaurant? How would ad managers know that 50 patrons tried your free samples?
Depending on your business category, you may benefit more from different KPIs. Here are some helpful marketing KPIs for your traditional business. Regardless of business type, you should look at these metrics to gauge the ad campaign’s brand engagement, awareness, and effectiveness.
- CPM (Cost per 1000 Impressions). Ad platforms reward better-performing ads with a lower cost per impression. A lower CPM indicates a more engaging ad.
- Cost-Per-Engagement. Just like CPM, lower is better, indicating a more engaging ad.
- Cost-Per-Facebook lead. Lower is better.
- Cost-Per-Video View. Lower is better.
- Cost-Per-Message. Lower is better.
- Frequency. This is the average amount of times any unique user has seen the same ad. A frequency higher than two may indicate ad fatigue, signaling the need for a creative update.
But calculating marketing ROI on the metrics mentioned above would be more complicated. Additionally, ad managers only compute ROAS based on your ad spend, not including how much you spent outside of the ad manager (i.e., production costs, talent fees, freelancer rates, etc.). We’ll get to that later.
2. Estimate your client’s marketing costs
You can’t compute your return without first computing your client’s marketing budget. You don’t only want to consider their ad spend, but also the cost of producing the ad, including your rate.
Your client’s marketing costs include ad creation and ad spend, especially if they engage in paid campaigns. Add ad creation costs with the ad spend; those are your client’s total marketing costs. Here’s a sample list of things they may need if they don’t have any marketing yet:
- Website Creation and Hosting
- Email Marketing
- Content Writing
- Product Photography
- Graphic Design
- Video Production
- Ad Spend
Depending on your country, these rates would be different. Give your clients an accurate breakdown and show them how much they can expect to spend.
However, it will be different if your client has an in-house production team to compensate annually. Or if they’re spending a premium subscription for marketing tools. In that case, tailor the expected marketing costs for the breakdown.
3. Decide your minimum expected returns
Determining the minimum expected returns is like assuming the worst-case scenario. Underplay the returns, but also be realistic.
If you’ve run Google or Facebook ads for previous clients, you probably already know the average cost-per-result for ads of their industry. This data will help you set expectations for your succeeding clients.
Depending on how your client’s business is set up, marketing efforts may not directly translate into revenue. If your client is a restaurant that doesn’t derive most of its revenue from online purchases, you may show them any of the relevant KPIs as mentioned earlier:
- CPM (Cost per 1000 Impressions)
- Cost-Per-Facebook lead
- Cost-Per-Video View
These metrics don’t directly track revenue but still have a tangible impact on the client. For this case, give your client a goal with an ad spend budget. Let’s say you consistently have a reach of 2,500 people per $1. That’s a CPM of $0.40.
Give them an estimate of how much they will get in return by assuming a 1% store visit rate, meaning that 1% of people who’ve seen the ad visit the store. So, assuming that your CPM is $0.40, an ad spend of $4 can help your client reach 10,000 users, which means 100 new customers given a 1% conversion rate.
4. Calculate the customer lifetime value
Customer lifetime value, or CLTV, is the value any single customer will be worth to your company for the duration of their life. This is a valuable metric since you’d want to show your clients that as your marketing campaign gains a broader reach, that will benefit their company in the long run.
Let’s go back to the restaurant example.
- For $4, we’re looking at possibly 100 new customers for the duration of that campaign.
- Let’s say that 10 of those become loyal customers.
- Take the average age of your campaign’s audience. Your ad platform of choice will provide this data. Let’s assume that the average age is 30.
- You’d want to assume that your customers will live up to 80.
- Use historical data from previous customers. Let’s say the average customer comes to your restaurant once a month and spends an average of $10 per visit.
- From this data, you can say that ten loyal customers will be ordering $10 worth of food every month for the next 50 years.
- The combined CLTV of these customers will be $60,000.
The real-world application might be more conservative. It’s safer to assume a 1% purchase or store visit rate then assume that 10% of those store visitors or purchasers will be lifetime customers.
5. Analyze marketing ROI from each campaign
You’d want to measure marketing ROI and KPIs from each campaign separately to have a better understanding of what’s generating more ROI. This section may be interpreted in two ways, both of which are true:
- Analyze the marketing ROI of your SEO campaign, social media campaign, email marketing campaign, and content marketing campaign to see which type of marketing is the most cost-effective for your client.
- Perform an A/B test. Create two versions of the same marketing campaign, run both together but change one variable, like audience.
That will let you know where to allocate more of your client’s budget for a better marketing ROI. Also, it lets you know what ads would deliver lower cost-per-results.
6. Create a marketing ROI dashboard
You’d want to present all your marketing campaign’s KPIs in one comprehensive dashboard that’s easy to interpret. That means gathering your KPI charts from Facebook ads, your Google AdWords performance, your Shopify reports and putting them all in one place.
eclincher offers a social media dashboard that gathers data from different ad platforms and even shows when your company and hashtags are mentioned on social media. You may learn more here.
The purpose of these dashboards is to help you visualize campaign results and determine what works and what doesn’t. You may also use the ROI dashboard to show your clients that your campaign generates actual results.
7. Give suggestions based on findings
From the start, you’ve already been gathering data. Let’s go back to the example in the first section:
- People see your ad but only 0.5% click through to your product page.
- People visit your site, but only 3% do any activity, such as browsing or adding to their shopping cart.
- Only 5% of people check out the items on their cart.
Based on these findings, you can make suggestions to your client that aren’t within your control. Bring that up to your client if your client’s brand guidelines don’t allow you to play around with the creative elements. You may potentially get a lower cost-per-result due to a more engaging ad.
If you notice a high bounce rate on your client’s website, suggest that you make changes to the site’s interface or choose a different ecommerce platform. There are many ecommerce platform options you can choose from.
If you notice a low checkout rate, you may suggest that your client lower shipping fees or that they invest in your email marketing services for cart abandonment email campaigns.
Another example is suggesting different sales prospecting techniques for B2B clients when low ad engagement. There’s no one-size-fits-all solution. You’re bound to find something that might work for our clients, but it will take some patience and willingness to try new things.
As a marketing agency, you’d want to communicate to your clients how your marketing campaign will generate ROI. The most important KPI would be revenue. But what if this metric does not apply to your client?
Utilize reach and engagement KPI, and then determine the purchase rate of your marketing campaigns. Calculate your client’s marketing costs. That includes the cost to produce the necessary collaterals and ad spend. The revenue resulting from the campaign minus the marketing cost equals the marketing ROI.
- Calculate customer lifetime value. That will give your client insight into the long-term effects of your marketing campaign.
- Analyze different marketing campaigns’ ROI so that you know which works better. From here, give your client suggestions on what they can implement for optimal ROI.
- Finally, provide your team and clients with a real-time dashboard showing your marketing ROI KPIs.
Follow these steps, and you’ll be able to show your clients that your campaigns are yielding the results they want.