Return on Investment for Digital Marketing

A lot has been written, webinars produced, and video tutorials made regarding all aspects of digital marketing. Still, most business owners scratch their heads about whether they are getting an adequate return on their marketing activities. I give webinars myself weekly and still attend basic webinars once or twice a month to learn from other consultants and providers to continuously improve methods to effectively help business operators grow their business. Understanding the best way to see a return on investment is a never-ending challenge even though digital marketing is more measurable than traditional marketing.

The most basic definition for return on investment in marketing is the measure of profit or loss that somebody generates on their digital marketing activities or (Net Profit/Total Cost) X 100. The challenge is deciding whether each isolated campaign in each channel by itself is making a contribution. Consider this typical situation:

An owner hires a part-time marketing coordinator to improve search engine optimization, post to social media, place and manage a paid search campaign and post social posts on specials. The marketing coordinator also gets pulled into ad hoc events, promotions and activities involving creation of flyers, website landing pages and so on. Therefore, it is extremely difficult to understand the return on a weekly or even monthly basis. However, most business owners cannot continue to invest money for a long period of time without seeing progress. Although it is difficult to do, a small business owner needs to try to understand what their organic growth, if any, is before any marketing activities. Then, layer in organic digital presence elements such as the cost of a website with hosting, search engine optimization, social media business profiles on three or four channels before one dollar is spent on paid advertising. The analysis might look like this:

Host website $      79

SEO                  $      99

Google Business Profile  $        0

Facebook Business Profile $        0

Instagram Business Profile $        0

Yelp Business Profile  $        0           

Marketing Coordinator to post, solicit and answer reviews $2,500

Total monthly marketing investment  $2,678

Average gross profit of sale $   300

Number of sales required to break even on marketing                         9

If nine or more sales averaging $300 are made and those sales would not be made without those digital marketing efforts, a positive return is therefore generated on the $2,678 expended for the month. If the sales come through ecommerce on the website this is a safe assumption. If customers walked through the front door of a retail store the contribution of digital marketing is a judgement call on the part of the owner. That is why we recommend a benchmark of organic business coming in without digital marketing activities as much as possible. When these activities have been active for several years it is hard to know how much organic business is taking place. In a highly unusual circumstance, we had a client that had run a substantial local digital and traditional ad campaign with a healthy five figure monthly budget. After much internal discussion they decided to stop all advertising and marketing efforts at once. Within 30 days, their new customer funnel volume had dropped by almost two thirds. In the fifth week during a review meeting this client asked us to urgently restart all campaigns in order to restore their previous level of new customer volume.

If an educated guess can be made about organic sales volume levels, lead or store conversion rates, etc. then it follows that an educated guess can be made about what growth rate your business might achieve if you implemented paid campaigns that drove new prospects into your website or store and what return might be enjoyed. Consider adding $1,000 per month split evenly between Facebook and Google to the previous example:

Monthly Marketing investment               $2,678

Google Paid Search                              $   500

Facebook boosted posts                       $   500

New total marketing investment          $3,678

The new number of sales needed for return is 13 using the same $300 average gross profit. It is reasonable that if this sales increase is achieved additional marketing dollars may be added to the budget until either the growth rate plateaus, or the business hits volume capacity given their inventory or store volume limitations.

All businesses are different. The important thing is to think about how to measure how much incremental profitable revenue is required to enjoy a return on digital marketing activities. Some businesses are simple to measure. Ecommerce transactions coupled with an analytics package like Google Analytics allows a determination of which channels are generating direct sales. Other businesses like walk-in-retail or restaraunts are harder to measure because many messages from many channels may have worked together to generate a store visit.

Let us know if we can help clarify and improve potential digital marketing investment returns for your business. Contact us to chat about your situation.

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