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How to Measure Internet Marketing ROI

June 17, 2010

Tracking Internet Marketing ROI is Important AND Possible. Follow this Four Step Plan and You will Be On Your Way to Measuring Marketing ROI (Online At Least)

QUESTION 1: WHAT IS THE GOAL OF YOUR SITE and INDIVIDUAL PAGES?

Your web site has value-generating goals– something that helps grow your organization.

These goals should be in line with larger organizational goals, and may include: There are specific pages on your web site that indicate you’ve achieved one or more of your mini-goals; when a visitor views that page, your site has generated value. Here are some examples: Goals can be almost any action that adds value to your sales process or organization getting its message out.

QUESTION 2: WHAT’S THE VALUE OF A GOAL?

Now the hard part — what’s it worth to your organization each time you achieve one of your mini-goals? If you’re selling products online, it’s easy: Find out your profit per sale, on a sale-by-sale basis. If you have a sales force, it’s still pretty easy: Figure out how many Internet leads convert to customers, and the average value of those customers. Then multiply the two: For example, if 25% of all Internet leads convert, and on average, each conversion is worth $1,000, the value of a lead is: 0.25 X $1,000 = $250 You can make this more accurate if you also consider the “long term” value of a new customer over say two years. Now that ROI may become much larger. If your only online goal is to get people to see a specific page — say, an article about Internet ROI — it’s a little more difficult. If, for example, 1% of everyone who reads your article online becomes a client, and on average each client pays $1,000 per year, then the value is: .01 X $1,000 = $10/person reading article. Measure how many people read the article and you have an ROI Metric. If you’ve got a newsletter, the same measurement applies: Track how often newsletter subscribers become customers: 10% of all subscribers become customers, and average customer is worth $1,000 Value of one signup is: 0.1 X $1,000 = $100 Even organizations that don’t sell stuff can measure effectiveness. Consider political organizations, where most of their work focuses on getting the word out, persuading the public, etc. For them, you can create a points system: 1 person reading a specific article = 5 points 1 person viewing a specific video = 5 points 1 person signing up for a newsletter = 10 points 1 person joining the organization = 100 points This is pretty arbitrary, but it works as a comparative measure: Campaign one got 30 people to watch a video: 30 X 5 = 150 points Campaign two got 500 people to watch that video: 500 X 5 = 2500 points We may not know, literally, the value of each campaign. But we know their relative effectiveness. Accuracy is important, but measuring trends is vital — as long as you can measure relative effectiveness, you can evaluate advertising effectiveness.

QUESTION 3: HOW MANY TIMES DID YOU ACHIEVE THAT GOAL, AND WHY?

You know what your conversion goal is, from question 1. Now you need to know how often you achieve that goal.

To do that, you need at least three out of the four basic metrics:
  1. Landings on a specific page or file. Measuring of this with a Google Analytics goals is a snap.
  2. Where your site visitors come from.
  3. Conversions. Some ad networks, like Google Adwords, provide built-in conversion tracking, so you can tell which ads generate value and which don’t.
  4. Source of each conversion. Again, use Google analytics to measure this critical metric.
If you’re selling products online the conversion metrics look like this: Shopping cart ‘order confirmed’ page was viewed 400 times, so we had 400 orders. 30 of those orders came from Google Adwords Ad #3. Those 30 orders totaled $4,000, with a profit of $3,000. So Adwords Ad #3 generated $4,000 in income, with a net value of $3,000. (Google Adwords reports this in an even simpler way, it’s just hard to explain in writing) Or, if you’re looking at leads: The information request ‘thank you’ page was viewed 400 times, so we got 400 leads. 30 of those leads came from Google Adwords Ad #3. Those 30 leads have an average value of $250 each. So Adwords Ad #3 generated $7,500 in value. If you’re working with a marketing consultant who knows this is a priority, and you don’t at least have three out of four metrics available, fire them and find someone else. No exceptions — how can a consultant help you deliver effective marketing if they don’t even know whether it’s effective?

QUESTION 4: WHAT DID IT COST TO ACHIEVE YOUR GOAL?

Now you bring it all together. What did you spend to achieve your goal?

Look at the value of each individual conversion in light of the cost of the advertising asset that generated that conversion: Sale 1 generated $1,000. It came from Adwords Ad #3. I spent $50 on clicks from that ad before I got this sale. So I spent $50 to get $1,000 in business. (there may be other related costs such as landing page development and ongoing optimization of Adwords that needs to be added in to the cost to be accurate) Then average it out: Sales from Adwords Ad #3 were worth $12,000. I spent $1,000 on that ad. Assuming I’m running a profitable distribution channel, I did pretty well. If you only know landings, referrers and conversions, you can still figure out general performance: This month I received 400 visits from Adwords Ad #3. Those visits cost me $50; I didn’t get those last month. This month I generated an additional $2,000 in sales. Those additional sales came from the products promoted in Adwords Ad #3. I didn’t do anything else. Chances are, Adwords Ad #3 generated most of those sales. (This is a good theory, but companies seldom give marketing this credit, it has to be measured to be real) This isn’t perfect, but you can at least determine which Internet advertising assets are not providing value: This month I received 400 visits from Adwords Ad #3. Those visits cost me $50. I didn’t generate any additional sales this month. Adwords Ad #3 isn’t working. (As above, not always the case, there are hundreds of moving part in your sales process so such a broad conclusion is often wrong. Again, only measuring will work) It’s better to know for sure, on a conversion-by-conversion basis, what’s generating value. But even if you don’t know that much, you can at least do a gut check and know which ads are ineffective. Armed with that knowledge, you can make changes and see whether those changes improve results.

ONE LAST BONUS QUESTION: WHY SHOULD I DO THIS?

There are many, many payoffs for basic ROI measurement.

First and foremost: You can measure which ads and campaigns generate value, and which don’t. The other benefits are almost as important, though. By gathering this kind of data over time, you can measure more than the effectiveness of individual assets — you can measure the effectiveness of whole marketing campaigns, and of different messages. That kind of business intelligence is invaluable, and means that measured Internet advertising delivers value far beyond individual sales. Answer the four questions and you’ll help your organization in the short term, with more effective Internet marketing. You’ll also help in the long term, with strategic data you can use to refine all of your marketing efforts. If you’re interested in learning more from our team, contact us today.

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