Proving return on investment (ROI) and return on advertising spend (ROAS) is the holy grail for marketers. Many of us remember the days where we were all making our best guesstimates as to how our marketing was performing. Now, we can track digital marketing impact to the penny. It’s great to have so many ways to measure ROI and ROAS, but now we have the challenge of abundance—and determining the best ways to calculate these critical metrics.
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According to TrackMaven, around 47% of marketers find it difficult to attribute leads to revenue and about 42% don’t know which metrics to track. With so many good key performance indicators (KPIs), which are the ones that make the most sense to track? And most importantly, which are the ones to share with your boss — to help grow your business?
ROI and ROAS: Why They Matter
Every business worth its salt tracks ROI for its expenditures, whether they’re capital, labor, marketing, or more. Measuring the dollar benefit you receive from spending in a certain area allows you to shift dollars to the most profitable efforts. Generally calculated as ROI % = ((Gain from Investment – Cost of Investment)/Cost of Investment) x 100, it’s important to apply this equation to any investment. Taking this idea one step further, the ROAS tracks the impact of advertising spend. It helps you compare various marketing channels, measure campaign performance, and forecast with accuracy, and it’s most commonly calculated as a ratio. ROAS = Revenue from Ad Spend/Ad Spend, and marketers aim for 3X or higher.
There are a number of digital marketing KPIs you can use to calculate ROI and ROAS by quantifying the gain or revenue from each campaign. It’s important that your specific goals inform which combination of KPIs you want to track. If your objective is to get as many leads as possible through your website, you’ll want to track lead conversions. And if you don’t need to worry about the amount of time users spend viewing specific pages, you can skip those metrics. As you’ll see, there are plenty of excellent performance indicators to track.
Types of Digital Marketing KPIs
KPIs come in many forms and flavors. They can be defined by the goals they’re trying to achieve, such as:
- Brand awareness KPIs, which include web traffic over time, survey answers, and search volume data.
- Lead generation KPIs, which include number of pages visited, number of requests for estimates, and new account signups.
- Engagement KPIs, which include impressions, engagement by a certain timeframe/timezone, post link clicks, and more.
- Social Media KPIs, which include message volume, shares, retweets, comments, likes, followers, and more.
- Sales growth KPIs, which include revenue growth over a specific time period.
- Search engine optimization (SEO) KPIs, which include sales and lead conversions, organic visibility, and organic sessions.
- Paid advertising KPIs, which include costs per lead and costs per acquisition.
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How Do We Find Digital Marketing KPIs and What Do They Track?
We derive KPIs from a variety of different sources, including:
- PPC tools: Google ads or Bing ads
- Lead conversion tools: Hubspot or others
- Web analytics tools: Google Analytics
- Social media channels: Instagram, Linkedin, Twitter, Facebook
You’ll find these KPIs in a number of different channels; these are the most popular ones to track:
- Paid search engine marketing (SEM)
- Search engine optimization (SEO)
- Social media
- Email marketing
Since there is so much rich real time customer behavior information generated by these platforms, the difficulty becomes narrowing down the data to what is most important. Which brings us to….
The Most Important Digital Marketing KPIs
Don’t waste your time tracking everything. Here are the most telling KPIs to watch:
- Keyword Average Ranking: Where you rank in searches matters. By tracking the average organic ranking for your keywords, you can see which ones are pulling traffic and which aren’t. Since more traffic turns to more conversions, that matters too.
- Unique Monthly Visitors: This metric tracks the number of different people that visit your site or app over the course of a month. You can often directly attribute lifts to recent marketing campaigns. Any dips in visitors can also alert you to issues in your marketing funnel, whether it be from your social, print ads, or other channels driving visitors to the site.
- Traffic to Lead Ratio by Channel: Traffic to lead measures the number of leads as a ratio to your site or app’s overall traffic. If you get 1,000 people on the site and 100 turn into leads, that’s a 10:1 ratio. When you view this by channel, you can see which one drives the highest density of leads. The equation is Traffic to Lead Ratio = Overall Traffic / Number of Leads.
- Conversion Rate: This metric takes your lead tracking one step further by tracking actual conversions. If you’re measuring conversions by paid, social media, organic, or other channels, you can quickly see which channels are performing best and you can allocate more spend to them. You can also measure conversions by device to find the top producer. Zeroing in on conversions is much more effective than tracking overall traffic numbers. The equation is Conversion Rate % = (Number of Conversions / Total Traffic) x 100.
- Cost Per Lead (CPL): How much do you pay per lead? When you spend more on paid ads than they generate in profit, then your ROI/ROAS is negative. Generally CPLs apply to paid campaigns since organic don’t have costs associated with them. However, you can also look at the overall digital marketing campaign spend and compare that to your total leads. The equation looks like this: CPL = Total Ad Spend/Total Attributed Leads.
- Lead Close Rate: Although many transactions occur offline, it is important to tie these numbers back into your analytics so that you get a clear view of how well you’re moving customers through the funnel. Lead close rates can reveal flaws in your marketing; if you get a high number of new leads but a low close rate, you are losing them along the way or potentially not attracting the best leads for your business. The equation is Lead Close Rate % = (Number of Conversions / Number of Leads) x 100.
- Cost Per Acquisition (CPA): CPAs help drive sales towards this goal and determine how much you spent to get a customer. If it’s more than the projected Customer Lifetime Value (see below), you’ll need to get that cost down. Like a cost per lead, the equation is CPA = Total Ad Spent/Total New Customers over a period of time.
- Engagement Rate: Tracking this metric allows you to see the number of times during a reporting period that users engage with a piece of content, a social post, a website page or landing page. This indicates how engaged users are with your brand.
- Customer Lifetime Value (CLV): It’s important to calculate how much money an average customer brings in over a lifetime. This number can be seen historically or as a prediction of future spend. Here’s the equation: CLV = Average Revenue per User (ARPU) x 1/Churn.
- Customer Retention Rate: Loyal customers are very valuable, as newer customers generally cost more money to secure. To calculate customer retention rate, use E=number of customers at the end of the period you’re measuring, N=number of customers you gained over that period, and S=number of customers you started with: ((E-N)/S)x100.
- Exit Rate: You can track each landing page to see where people leave your site and compile a ratio of exits/page views to determine which pages have the highest percentage of exits. Those with high rates can be revamped for more “stickiness” with elements like videos, calls-to-action, or better overall design.
- Net Promoter Score (NPS): The scores run from 1-10, and help you determine how loyal your customer base is. Customers that report that they will recommend your product or service receive a high NPS. By comparing the promoters with the detractors, you can ferret out any blind spots in your products, services, and customer service—and work to remedy them. The equation is NPS = % Promoters Versus % Detractors.
So there you have it. Twelve excellent ways to measure your digital marketing success. Depending on your goals you may only use a handful of these—or find even more that make sense for your objectives. With KPIs, it’s most important to track the metrics that align with your business. And if you’re not sure which metrics those are, let us know. We can help you find them and analyze them. We can help you prove your ROI and ROAS. It’s the holy grail, but it’s completely in your reach.
