July 8, 2019

How to Evaluate Return on Investment in Online Advertising

For the most basic ROI equation, you can assign a value based on how often your goals result in sales, and what an average sale is worth to you.

How to Evaluate Return on Investment in Online Advertising

Online advertising has become one of the most important components of a small business marketing plan. Online advertising is much more cost-effective than traditional media and gives you new ways to reach your audience.

However, many businesses aren't getting the best return on investment (ROI) in their online advertising campaigns. To boost your success and improve your ROI for online advertising, you must first begin to track your ROI.

Define Goals for Online Advertising

To measure the success of your online advertising campaign, you must first set goals for your online advertising. The goals may vary depending on the type of medium you will pursue. Common goals for online advertising include:

 Try-and-buy signups

 Completed sales

 Referrals

 Inbound phone calls

 Completion of a contact form

 Newsletter subscriptions

 E-mail marketing campaign click-through's

Each of these goals gets you further contact with your clients or can translate directly to a sale, all of which has the potential to generate revenue.

Assign Monetary Value to Your Goals

How much are your goals worth? To track your ROI, you must assign a monetary value to your goals.

For the most basic ROI equation, you can assign a value based on how often your goals result in sales, and what an average sale is worth to you. For example, if an average E-mail marketing campaign nets you 20 sales each worth $50, you make $1,000 in sales from that campaign. As you track online advertising over time, you will get a sense of how much you can make and can better calculate your expenses and ROI.

However, you can also go deeper and assign a value to click-throughs that don't result in immediate sales. Maybe you will find that future sales potential is higher among people who click-through your marketing E-mails. So probably a click-through that doesn't result in an immediate conversion is worth $3 in the long term. Say you get an extra 60 click-throughs that don't result in an immediate conversion, but you know they are worth $3 each, so you have netted an additional $180 in revenue on top of direct sales. From that $1,180 in gross revenue, you can subtract your expenses and find your net profit from the E-mail campaign.

Formulas to Determine ROI in Online Advertising

You can use many formulas to calculate your ROI in online advertising depending on how detailed you want to get. Two of the most common formulas are:

ROI Gross Profit Percentage: This formula calculates the ROI on a transactional basis. To track your ROI as a gross profit percentage, calculate: (Return - Marketing Investment) / Marketing Investment. With this calculation, you can tweak your online marketing campaigns as needed and track the ROI to find out what performs best, and ultimately boost your ROI.

ROI Based on Lifetime Value: You can also calculate your ROI for online advertising based on the lifetime value of your customer. If you often have repeat sales from customers that you have gained once, you can calculate the lifetime ROI using this formula: (Customer Lifetime Value - Marketing Investment) / Marketing Investment.

Conclusion

Ultimately, tracking your ROI for online advertising is a vital component of measuring the success of your marketing campaign. If you are getting a poor ROI, you can discontinue a certain element of your marketing campaign and allocate those funds toward a better-performing segment.

Alternately, you can tweak your campaign to boost your ROI. Assign goals and values to your online marketing campaign in order to accurately track your ROI.