Web Marketing, how to calculate the advertising ROI
ROI is an acronym that everyone who chews at least a little ‘ Web Marketing know. It stands for Return on Investment, or return on investment made. It is a term borrowed from finance, but also widely used in advertising and is used to measure, using a special formula that we will now see, how much has been recovered compared to an investment made. Recovery is generally understood in money (and investment as well).
The ROI formula is
ROI = (investment gain – investment cost) / investment cost
And the result is expressed as a percentage and this makes the ROIs easily comparable with each other, even in projection, ie before choosing this or that investment. We can therefore easily state that ROI measures the amount of return on an investment. How much does this investment make me? I can calculate it through the ROI, using the formula we posted above.
How to calculate the advertising ROI: if I spend 1 euro, how much does it come back to me?
This is the goal of every advertising campaign: to generate a profitable business. Is your business generating sales? Is it generating business? You can know it thanks to ROI. This is why the return on investment is such an important metric.
As we said, the ROI is calculated using two main parameters: the cost to do something and the terms generated as a result (which are usually measured in profit). However, applying the formula may not always be that easy and intuitive. Often large companies investing in advertising do so by setting up dozens of variables in rather complex algorithms and formulas. In traditional marketing, what is definitely needed to calculate a ROI well is?
- Access to company financial data
- Patience (I can take weeks or months to know if an advertising campaign has been profitable or not)
And this is even more valid if you calculate the advertising ROI on a single campaign.
In any case, to answer the question if I spend 1 euro in advertising, how much does it come back to me? We must introduce the concept of relationship. The ratio between revenue and marketing costs represents the amount of money generated for each euro spent on advertising. A good advertising ROI assumes an optimal 5: 1 ratio. And this is the answer to the previous question. It means that 5 euros of sales for every euro invested generate the ratio 5: 1. This report represents, as we said, an optimal return on investment. It is possible to do even better, of course. But ratios between 5: 1 and 9: 1 are considered strongly most companies and a ratio of 10: 1 or higher is considered an exceptional result. These are of course theoretical figures: the ideal ratio must be calibrated from case to case, from offer to supply, based on multiple factors and ultimately the strategic relevance of individual conversions. In some cases it may even be acceptable for a negative advertising ROI, for example, but not always, for brand awareness campaigns. Remember in any case, before starting a marketing campaign (or Web Marketing), to use the reports: they are easy to understand and to apply and they immediately give you the idea if your investment can have (or not) success in sales terms.
Also Read: The Major Impact of WordPress on the Web
Two words on Web Marketing and Advertising
Needless to say, the advent of the Internet has changed the way we advertise. If before we talked about interruption marketing, today it is necessary and obligatory to talk about marketing the interaction. Google AdWords, Facebook and so on have allowed the creation of a proximity marketing that by developing a highly profiled target, presents the end user with the right product at the right time. Just the product he’s looking for when he’s looking for it.
Thanks to the advent of Facebook and other social media, blogging, the Google AdWords (simplifying things a bit) Web Marketing and advertising, which were and are two distinct terms, now more than ever inevitably are used interchangeably. The marketing is actually a discipline to coordinate strategically various activities, including the promotional activities, namely advertising. In the context of Web Marketing we remember various promotional forms:
- Through content marketing (creating and posting content relevant to your target, for example in the company blog and then share it in various channels, including social media)
- Through Facebook Ads
- Through the interactions between brands and targets on social networks
- Through email marketing
- Through Google AdWords
This is to say that very often the terms Web Marketing and advertising are used as synonyms. Although purists will always say that “just as traditional advertising is a tool managed in the marketing plan, the promotional campaign through banners and pay-per-click links is organized and managed within the Web Marketing plan”.
Of course it makes sense in any case (and indeed, it is essential) to talk about advertising ROI in the context of Web Marketing. Otherwise why invest if you do not set the goal to be profitable?
ROI in a Web Marketing campaign: is your advertising investment effective?
Calculating ROI means considering whether an advertising campaign should be interrupted, kept stable or enhanced. Indicating the actual gain on an invested capital, it also allows to evaluate which among different advertising investments to carry on and which to stop. For example, calculating the ROI you can find out if it is worth continuing an AdWords campaign and maybe stopping a Facebook Ads that is not giving the desired results. In the context of Web Marketing, then, it is useful to know that there are returns on investments that are also different from money whether you create custom whiteboard animation video for hire. This is the case of SROI, or social return on investment, a parameter (percentage) that takes into account the social or environmental impact of an investment.
In Web Marketing, compared to traditional marketing (transferable to other media), calculating ROI is easier because it is possible to track almost everything. You can therefore know with a small margin of error from which advertising campaign has arrived the new customer and easily identify the campaign that has been more performing.
So if a banner does not work, it is replaced or deleted. With the term not working, we mean that it produces few sales, which is not performing. In this case, therefore, be careful to consider the cost per customer acquisition as a parameter and not the CPC (cost per click), since a banner (if well done) can be much clicked but, de facto, produce few or zero sales.
The same goes for a Pay per click (PPC) campaign. With the PPC advertisement, it is easy to calculate the ROI because you already know that:
- on the sale of product A I have a profit margin of 1 euro
- on the sale of product B I have a profit margin of 10 euros
On the promotion of which product can I invest more? The answer is intuitive. On the contrary, it is much more evident in the PPC advertisement, rather than with a banner campaign, even if the banner and the site that has to host it are better targeted.
We have touched only a few basic aspects of measuring Web Marketing activities and, despite this, you may feel confused. Do not worry, it’s because the matter is complex. It is no coincidence that there are specialized professionals who deal primarily with the planning and implementation of digital strategies. If you think you need a figure like this, you can contact for free a Web Marketing expert who will guide you in promoting your products or services and in correctly preparing a campaign that produces a good advertising ROI.