What Is ROI in Digital Marketing? How To Measure?

Are you pouring money into marketing campaigns for tons of viewers but none of them are turning into paying customers? You’re not alone. Many businesses launch ads, post content, or invest in tools without understanding how to track them effectively so they translate into actual profit. 

That’s where return on investment (ROI) comes in. This metric helps you understand which strategies are paying off and which ones drain your budget.
 
In this article, you’ll learn what ROI means, how to measure it, and how to make every dollar count in your business. You’ll also get insights into who offers SEO services, and which ones make the most sense for your business.

What Exactly Is ROI in Digital Marketing?

So, what is ROI in digital marketing? ROI stands for return on investment, and it equates to the profit you generate compared to what you spend on your marketing efforts. 

Instead of just focusing on revenue, ROI zooms in on net profit, or what you actually get to keep after expenses. 

Imagine yourself at a vending machine. You put in a dollar and you expect to get at least that amount worth, if not more value in snacks or drinks. 

If you put a dollar and only got 70 cents back, that machine wouldn’t be worth investing your money. Marketing ROI works the same way in that you’re putting money into your campaigns, and you want to get more out than what you put in. 

The key is recognizing marketing costs aren’t just ad spend. They include everything from the software you use to the time your team spends on creating content. ROI gives a full picture of whether your investments are profitable or just eating away at your resources.

By looking at ROI, you stop guessing and start making decisions backed by actual numbers.

The Essential Digital Marketing ROI Formula

Here is a formula for getting to the bottom of ROI and understanding how to pull the exact numbers you need from every campaign. 

ROI = (Net Profit from Marketing + Total Marketing Cost) x 100

Let’s break it down so you can understand it even better:

• Net Profit = Sales Growth – Marketing Cost
• Total Marketing Cost = Everything you spend on marketing, including ad spend, tools, content creation, and employee time

Here’s a quick real-world example:

Suppose you spent $1,000 on a campaign. That campaign generated $5,000 in new sales.

1. First, calculate your net profit: $5,000 (sales) – $1,000 (cost) = $4,000
2. Next, divide your net profit by your cost: $4,000 / $1,000 = 4
3. Multiply by 100 to get your percentage: 4 x 100 = 400% ROI

That equation means for every dollar you spent, you earned at least 4 dollars back. 

The calculation is straightforward but the magic is tracking it consistently across your campaigns. ROI formulas allow you to easily compare your efforts and determine which campaigns deserve the most investment. 

Key Metrics That Determine Marketing ROI 

Having the ROI formula is just the starting point to understand your digital marketing performance. To dig deeper, you need to identify specific metrics called key performance indicators (KPIs) and track their progress. 

Customer Acquisition Cost (CAC)

Your CAC illuminates how much it costs your company to acquire a new customer. If the total cost to acquire the customer is higher than what they spend with your company, the ROI suffers. A lower CAC means more profit per customer. 

Customer Lifetime Value (CLTV)

How much a client spends with your business over their entire relationship with your company is the CLTV. This is the total revenue you’ve earned from one client and a higher CLTV means clients like your service and want to keep coming back. Your CLTV should be at least three times your CAC on average. 

Cost Per Lead (CPL)

A CPL shows how much it costs to generate a potential client. Businesses focused on lead generation and direct sales need to hone in on their exact CPL. When your marketing is aligned with your client messaging, you’ll have a lower CPL and generate more opportunities for less money. 

Conversion Rate

A conversion rate is the percentage of users who take a desired action compared to those who see your ad or campaign. A high conversion rate boosts your ROI because your marketing is resonating with your audience and attracting more leads. 

Average Order Value (AOV)

The average order value is how much a client spends per transaction. Increasing your AOV through upsells, bundles, or special offers can significantly boost ROI without increasing acquisition costs. 

What’s a Good Marketing ROI? Setting Realistic Benchmarks

You might be wondering what counts as a “good” ROI? In business, it will depend on your specific industry, profit margins, and marketing channels you use. 

Here are some general benchmarks to use as a starting point:

• A 5:1 ratio (400% ROI) is considered strong.
• A 10:1 ratio is exceptional.
• A 2:1 ratio means you’re breaking even when all expenses are considered.

In high-margin industries like software, you will see higher benchmarks while low-margin industries like retail may settle for smaller returns. Similarly, SEO campaigns show higher ROI over time compared to short-term paid ads because of their compounding benefits. 

The key is to not chase someone else’s benchmarks but to track your own results over time. Measure out a baseline ROI for your company and then look for steady improvements. Even small gains like raising your ROI by 10% every quarter can lead to significant growth over time.

Essential Tools for Measuring Digital Marketing ROI

You’ll need the most useful tools for campaigns to measure your ROI effectively. These tools also allow you to connect several tools together to get the most comprehensive look at your marketing data.

Web Analytics

Google is the frontrunner when it comes to tracking website analytics. The search engine is used the most of any in the industry and their free Google Analytics platform helps you track every single visit and search phrase. It can also track user behavior and demographics. Pair it with the free Google Search Console and you’ll have everything you need for a successful SEO campaign. 

CRM Platforms

A customer relationship management (CRM) system like HubSpot helps you track leads across every touchpoint. From the first website visit to closing a deal, a CRM tracks all customer behavior so you can attribute revenue back to its original source. CRMs are also useful for marketing and sales since you can track customer information and use it to fine-tune your offerings. 

Ad Platform Analytics

Platforms like Google Ads and Facebook Ads Manager give you direct insights into ad spend, click-through rates, and campaign-specific ROI. These tools will show which ads are driving conversion and which ones need reworking. Meta and Google are the most popular ad platforms but almost all social media channels now include advertising and allow you to show up directly in people’s feeds.

Marketing Automation Tools

The speed at which companies are improving their systems and processes is unprecedented. To keep up, you need to include marketing automation tools that connect the dots between your emails, social media, and customer interactions. They help nurture leads and make it easy to track your revenue to specific campaigns to see which ones are working best. 

Five Actionable Strategies To Improve Your Digital Marketing ROI

Improving ROI goes beyond cutting costs and involves strategic marketing decisions that get you more results. 

1. Refine Your Targeting

Identifying your audience and delivering highly targeted messaging is exactly how you improve ROI for the long term. Focus your efforts on your most high-value audiences that drive the majority of your revenue. 

Use lookalike audiences in your ad campaigns that will help show your ads to people that are most like those that have already responded. Also take advantage of demographic filters and retarget every individual that has taken action in your campaign. Most successful conversions happen after several touchpoints with your brand, not just a single funnel. 

2. Optimize for Conversions

You want the most people possible to view your campaigns so you can get the most results possible. The problem is if everyone sees your campaign but no one takes action, you’re practically throwing money down the drain. 

Turn visitors into buyers by testing your landing pages after your ad and your call-to-actions. Even changing a sentence or two on your website can significantly impact your conversions. Even small boosts in your conversion rate can have a huge impact on ROI.

3. Leverage Marketing Automation

Automated email workflows, lead scoring, and drip campaigns are all automated marketing campaigns that save you time and make sure leads don’t slip through the cracks. Nurturing your leads at every possible touchpoint means more sales from the same marketing spend. 

You can set up all the systems yourself and try to connect all your tools together but unless you have previous experience, it takes some trial and error. Outsourcing the process to a marketing company like Levy Online takes the stress out of the equation and helps you get immediate results and leads. 

4. Focus on High-Performing Channels

To get the most ROI possible from your campaigns, you need to focus on your highest performing channels. The marketing channels that deliver the highest ROI deserve a higher budget. Reallocate accordingly and constantly track your numbers so you can make quick and impactful decisions. 

If you see Meta Ads are outperforming Google Ads, then you need to double your investment where you see the most results. Don’t try to salvage a dying marketing channel and spend your resources when you could have just invested in something that already worked. 

5. Improve SEO To Lower CAC

Ranking high in search results will naturally reduce your dependence on paid ads and it will lower your CAC over time. SEO will pull in a constant stream of new visitors and lead to your site without any extra effort. 

Instead of spending all your resources on ads to gain new leads, these leads end up contacting you, and you’ll need to spend your resources fine-tuning your inbound funnels. 

Making Every Marketing Dollar Count With Levy Online

ROI is the ultimate measure of any marketing campaign and success. It’s not just a calculatable number, it’s a benchmark your team will use to make quick decisions that get you more return on your investment. 
At Levy Online, we help businesses like yours maximize every marketing dollar by turning data into tangible results. Give us a call today or fill out our contact form to get started and see how our digital marketing services can start generating you more profit today.

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