How To Know if Your Digital Marketing Campaign Is WorkingYou can't grasp the effectiveness of your marketing campaigns without understanding which metrics really count.
No matter what your business, there are few things more challenging than understanding the real return you’re getting on the investment you’ve made in your marketing efforts. Part of the problem is the wealth of acronyms -— ROI, CTR, ROAS and more. How do they all fit together, and how you figure out what bang you’re getting for your digital marketing buck?
Track what’s important, disregard the rest
There are many metrics you can track, and not all of them are especially valuable.
“Stay away from vanity metrics, such as the number of your Facebook fans, or number of subscribers on your email list,” said Catherine Campbell, director at Bright Planning, a strategic marketing consultancy. You might be inclined to measure these numbers in part because, well, they’re easy to measure. But they tell you little about a campaign’s ability to deliver real revenue. Here are some key metrics you should be tracking instead.
Traffic. How many people are coming to your website? Google Analytics (which you can use for free) is instrumental in telling you basic information like number of visitors, where they are coming from, how long they stay, if they bounce and their conversion rate.
Click through rate. The click through rate (CTR) tells you how many people are clicking on your ads. Sara Johnson, a digital marketing associate at marketing firm Blue Compass, advised: “If you’re putting out an ad that is receiving minimal clicks despite a lot of impressions, this is a clear indicator that your ads need to be optimized.” Conversely, a high CTR implies your promotion is beneficial to target audience. It’s helpful to know the average CTR for your industry, which gives you a benchmark against which to compare your ad’s performance. These averages are often compiled by marketing professionals and can be found with a little online sleuthing.
Conversion rate. Your CR is the percent of people who take the action you want them to complete, whether it’s signing up for something, purchasing something or some other activity. Your CTR might be high, but if you don’t ultimately convert visitors, the campaign has failed.
Cost per acquisition. Your CPA answers the critical question, What does it cost you to convert a customer? It’s the total advertising cost divided by the number of customers acquired. “If the cost per acquisition is low because of a high number of conversions, your ads may have proven successful. On the other end, if the cost per acquisition is high because of a low number of conversions, the ad most likely was not effective. Cost per acquisition ultimately informs you whether or not your digital marketing campaign was successful and if your money is being well spent,” said Johnson.
Distinguishing ROI From ROAS
The numbers above are important and revealing. But the real measure of your campaign at a 30,000-foot view is its return on investment.
There are two commonly used measurements. You are already familiar with return on investment (ROI), calculated by using the formula ROI = (revenue – cost)/cost. But you should also be familiar with Return On Advertising Spending (ROAS). ROAS = revenue/cost. It’s increasingly used by digital marketers, and it’s reported in Google Analytics for Google AdWords campaigns.
The difference is fascinating. Consider a campaign in which you spent $5,000 on online ads and coincidentally tracked $5,000 in revenue. The ROI for this campaign would be 0 percent — you earned no return — while the ROAS would be 100 percent, since the revenue matches the cost of the campaign.
ROI gauges your profit — it’s focused on the health of the business — while ROAS measures the gross revenue earned against your marketing spend, and breakeven starts at 100 percent, not zero. It can be a misleading indicator unless you recognize that it’s based on revenue, not profit.
Want some help calculating your ROI? You can find tools online to simplify these calculations. You might find this email marketing ROI calculator useful, for example. It returns an ROI based on MailChimp’s subscription costs. A downloadable Google Doc makes it easy to find the ROI of a Facebook campaign (to download this doc, you need to subscribe to a marketing email).
The case for Lifetime Customer Value
Calculating ROI isn’t enough, said Bobby Stemper, marketing director for the advertising tech startup AdHawk. “One thing that sets high-growth companies apart from other small businesses is a focus on unit economics, which is a practice of boiling all business metrics down to a single customer. This is crucial to understanding the ROI of your marketing campaigns.
“One of the biggest issues I see small businesses face on the digital advertising side is not knowing how much they’re willing to spend to acquire a single customer.”
Another measurement, Lifetime Customer Value (LCV), can help you determine how much that customer is really worth.
LCV is an estimate of the total profit you can expect from a customer acquired via a marketing campaign. Specifically, LCV = (average value of a sale) x (number of repeat transactions) x (average retention time for a typical customer).
Tony Lee, social media manager at Zimmerman Advertising, said, “A client once asked me to get the bids on her keywords cheaper in search by $0.10. She needed a greater ROAS for more revenue. But I argued to optimize and bid on a keyword group that was $0.30 higher because that group were more likely to make more purchases but also have a slightly higher average basket size. The math worked out that the group with a lower cost per click had a slightly higher ROAS, but the group with the higher cost per click had a significantly greater LCV. That led to more revenue.”
In the end, all digital marketing campaigns are about profit, not just impressions, traffic and CPCs. LCV is a reminder that your campaign’s success is often about building customers who will continue to pay off for you well into the future.