From another, though, having digital metrics has made our jobs more difficult. Because we have detailed performance metrics, the business now feels that we should be able to calculate, accurately, the return of their investment in marketing. We should be able to prove digital marketing ROI.
At first, proving digital marketing ROI looks relatively simple. The ROI equation (below) has only two variables (‘investment’ and ‘return’) and so it seems that all we need to do is plug in these values and we’re done.
When you think about it a bit more, however, proving digital marketing ROI is actually rather complicated. Even if we are told the investment number in the equation, calculating the return on our efforts is not straightforward at all.
Our contribution to ‘return’ is obscured, unfortunately. Most of our efforts only affect revenue indirectly and our results are often mixed up with the work of our colleagues and agency partners.
Untangling these factors is so difficult that most marketing departments don’t even try to prove digital marketing ROI. In a 2017 survey of chief marketing officers, only two in five (39.5%) CMOs said that they were able to prove the impact of marketing spending quantitatively.
Yet we are often being asked to prove ROI anyway. So for those who are determined to do so, how can marketers prove digital marketing ROI? And what can a single marketer do to get started on this journey?
To answer these questions, Econsultancy recently held a Digital Intelligence Briefing in Singapore where I spoke on this topic and provided a roadmap to ROI for the marketers in attendance. Below is a summary of my presentation.
So what steps do marketers have to take to prove digital marketing ROI?
1) Understand what you need to report
Typically, marketers focus on performance metrics: cost-per-click, sessions, conversions, email opens, etc. While these are all essential when optimizing marketing performance, performance metrics are useless when proving return on investment.
Why? Well, as all investment in marketing comes through finance, in order to calculate their return on investment, finance needs financial metrics. That is, they need to know what impact your actions had on the bottom line. More plainly, did you either increase revenue or decrease costs?
Any other performance statistics, such as an increase in brand awareness or a lower cost-per-click, simply do not matter when you are proving digital marketing ROI.
2) Know how to increase revenue
While decreasing costs is a valid approach in theory, in practice it is more sensible to show that you are increasing revenue through marketing. Doing so will mean that you can attract more investment in future, focus more on doing great work, and rely less on penny-pinching to prove your value.
In order to show that you are increasing top-line figures, though, you need to become very familiar with the levers marketing can use to boost revenue.
For most digital businesses, there are three ways marketers can impact revenue. They can:
- Increase sessions
- Increase conversion rate
- Increase the average value of customers
If what you are doing is not focused on improving these key performance metrics in a direct and measurable way, then you need to reconsider what you are doing if you want to prove ROI.
For example, if you are a content marketer and judging performance based on time-on-site or page depth, then you need to link an increase in your performance metrics to one of the metrics listed above. If you cannot, then you are going to struggle to prove that you are delivering return on investment.
3) Choose the supporting metric to move
Deciding on which metric you are going to move to increase revenue is the first step, but often it’s too difficult to demonstrate that you are directly responsible for moving them. The conversion rate may increase, but how are you going to show that it was because of something you did?
To answer this, you need to choose a supporting metric for which you are solely responsible. Then spend as much of your time and effort on moving it as you can.
If you work on the website, you could be responsible for the number of people who abandon the cart at a particular checkout stage. You can then use improving this metric to demonstrate how you have improved the conversion rate.
Or, if you are responsible for advertising, you may write and rotate ads to lower the cost-per-click so that more people are visiting the site (increase in sessions) at the same cost to the company.
Whichever you decide to work on, make the supporting metric the ‘one metric that matters’ for your daily marketing activities.
4) Use a time series to measure impact
Another key part of proving digital marketing ROI is to measure the key metric over time, both before and after your effort, using a regular sample of the data or a time series. The reason you need a time series for proving digital marketing ROI is that it will allow you to illustrate that your actions had a material and lasting impact on a key metric.
Additionally, you should also be able to show that your initiative did not have a negative impact on any other key metrics. That is, to prove ROI you also need to show that while you have increased conversion rates, you did not inadvertently lower the average value of the customer. Doing so would reduce, if not negate, your impact on revenue.
5) Report your achievements
Finally, to prove digital marketing ROI, you need to let the business know what impact you have had on revenue (the ‘return’).
To do so, start by acknowledging the ‘investment’. This should include salaries, infrastructure, licenses, as well as media spend and should include the time period (month, quarter, or year).
Then, tell your audience what you or your team did to justify your investment. Typically, this will be the work you did to move the supporting metric so that the key metric (sessions, conversion rate, or customer value) increased.
Ultimately, you need to translate your achievement into the main financial metric, money. By how many dollars do you estimate that you increased revenue in the time period you used for the investment portion?
Using these figures, the investment and the return, you will now be able to calculate a reasonably accurate measure of the return the business had by investing in the work you did.
Armed with this figure and evidence of your work, you will then be well on your way to proving the ROI of digital marketing in your company.
A word of thanks
Econsultancy would like to thank all of the marketers who attended the presentation and helped with this post by asking many intelligent questions.
We hope to see you all at future Econsultancy events!