“What are the best marketing channels to invest in for my business?”
As a marketer, this is a question you’ve probably mulled over, over and over again.
And it all comes down to Return on Investment (ROI). You should spend your marketing dollars on the strategy or strategies that you can prove will get you the biggest bang for your buck.
Yes, yesterday’s CMO was about communications, branding, and advertising. Today, the CMO is a strategic partner to the CEO, someone expected to understand the business landscape well enough to articulate and predict which markets, products, services, or execution strategies will deliver the most profitable growth.
The days of gut-feeling marketing are long past; today, being able to track and prove the validity of your efforts is vital.
But determining the ROI of a particular marketing strategy can be difficult.
Your customer experiences your brand and your website in numerous ways―they are coming in from so many varied touchpoints, from email, to Snapchat, to Bing Ads, to whatever the shiny, new marketing tactic is this week.
It’s unlikely that one interaction is responsible for capturing them, making it difficult to untangle and measure one marketing channel against another. While there are many different strategies and workarounds for attributing marketing ROI, it’s easy to get overwhelmed.
In a sea of murky ROI estimations, how can you best determine where to invest your marketing dollars?
First things first: How do I measure ROI?
The simplest way to calculate ROI from a marketing strategy is to take the sales growth from your product or business, subtract the marketing cost, and divide by the marketing cost:
Simple Marketing ROI:
This is an oversimplified equation, of course, as it is rare that a single factor is influencing your sales growth at any given time. However, you can use it to get a general idea of ROI for a particular strategy.
For example, let’s say you invest $1,000 in an ad campaign that runs for one month, and you see sales growth of $2,000. Your simple ROI is 100%: (($2,000-$1,000) / $1000). That’s pretty great!
But this equation assumes that none of that observed sales growth is organic…which most likely isn’t the case.
Note: In the aforementioned equation, I use “sales growth”, but there are other values you can use that may make more sense for your business. Read more here.
Ok, so how do I account for organic growth?
To predict organic sales growth, examine your monthly sales from the previous year and calculate the average organic growth per month. You can use this average organic growth rate to estimate where your sales might have been without your marketing campaign activity, and adjust your original ROI calculation accordingly.
If your business has an average organic growth of 5% over the period of a year, your calculation would look like: (($2,000 – $1,000)/$1,000) – 5 = 95%
This slightly more sophisticated equation indicates that ROI for this campaign is actually 95%, a substantial difference.
How can I predict what strategy will have the biggest ROI for my business?
Your industry, location, pricing, and even brand equity can dramatically affect ROI, which is why relying on average benchmarks can be dangerous. However, you can leverage information like the following studies (published by Nielsen) to get an idea of where other companies are spending their marketing dollars:
- Marketing effectiveness: Getting the right returns from brand investments, published by Nielsen
- Maximize the return on your advertising spend, published by Nielsen
According to this research, Online Ads/Digital Marketing Investments have a higher ROI across all industries, but “online ads/digital marketing investments” is a pretty big bucket.
With Instagram’s algorithm-based feed, Snapchat’s in-app ad growth, and even Reddit getting in on the “promoted post” action recently, there are tons of options for advertising online. You must take into account the strengths and weaknesses of each channel when you’re thinking about where to invest. Banner ads, for example, are a popular channel but 54% of online banner ads are never seen!
Using the aforementioned formulas, you can measure the ROI of your social media and email marketing campaigns using conversions from specific landing pages. (Simply replace “sales growth” with “funnel conversions”). You can also track conversions with UTM parameters in Google Analytics. This allows you to track your visitors from the source through your funnel to prove the results you’re driving.
For a strategy like SEO, you can track ROI using your Google Analytics: segment by organic, non-branded traffic (to gauge how you’re ranking for non-branded keywords) and track conversions. Because GA tracks multi-channel attribution, you should be able to determine whether or not a customer clicked on an ad, then came to your site through search, or vice versa. It’s not always black and white, but you can get a good idea of ROI on your SEO.
Each marketing strategy you invest in will take a certain amount of time to reach your target market and begin generating ROI, so it’s important to prioritize for maximize impact. Vanity metrics ― like number of social media followers ― can be helpful in terms of gauging your brand awareness, but they shouldn’t be your main concern. You want to keep track of which strategies are actually generating sales and revenue, now and in the long run.
When you’re thinking about average ROI benchmarks for digital marketing strategies, be wary of conversions versus revenue. For example, a Fortune 500 company might be able to generate the same sort of revenue with a less than 2% increase in conversions as a smaller company with low traffic might be able to generate with a 40% increase in conversions.
Calculating the ROI of conversion optimization
Conversion rate optimization (CRO), more simply known as conversion optimization, is the science and art of getting a higher percentage of your web visitors to take action to become a lead or customer through testing.
Testing, measuring, and proving are built into conversion optimization, making ROI refreshingly easy to calculate: it’s unique in that you can see the return with each test that you run. CRO has become a de facto strategy because each of your marketing channels becomes more effective when your site is optimized.
Conversion optimization gives immediate results and that’s a great feeling. Particularly with e-commerce, if you have an idea, you test it, and you know you’re about to see what that idea is worth in monetary value.– Jose Uzcategui, Global Analytics and Ecommerce Conversion Lead, ASICS
In an optimization experiment, your original page serves as the experimental control and benchmark for ROI. The challenger page (variation A) is tested against the original, showing the difference in conversion rates and projected revenue between the two. Marketing, promotions, and seasonality are all constant between the two pages, because they exist simultaneously.
The formula for calculating the ROI of CRO looks like this:
Revenue from the Challenger or Original can be calculated from: (number of visitors x conversion rate x goal value).
For example, let’s say you run a test for one month. You spend $2,000 on designing the challenger page and it generates $5,000 in revenue from conversions. Meanwhile, your original page generates $2,000 in revenue from conversions.
The calculation would look like this:
Related: Try our free ROI calculator to discover your company’s potential return on testing.
50% ROI! Not bad for a month-long test. However, unlike “pay once, benefit once” marketing tactics, the benefits of optimization are compounded and long-term. If this variation continues to perform at the new (increased) conversion rate for 12 months, the ROI is actually 600%: 12*(($5,000-$2,000-$2,000)/$2,000).
Additionally, as your other marketing streams (SEO, PPC, Content) funnel visitors to your website, the increased conversion rate from your conversion optimization efforts will help increase the ROI for those marketing streams as well.
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WiderFunnel delivers a cadence and quality of A/B testing that is game-changing for our brand. Direct sales increases are enabling us to increase our spend on other advertising because of the known performance return. That in turn is driving our overall brand awareness. Put simply, WiderFunnel does not just help us sell directly; it is rocket fuel for our entire cross-channel marketing program.
Chief Marketing Officer
What does the return on testing look like over the long term?
It’s important to re-validate the results of your conversion optimization strategy every few months, to ensure that that 600% ROI prediction is actually something you can take to the bank.
Here’s an example of a re-validation test we ran for one WiderFunnel client. After two years of optimization, we had seen a calculated conversion rate lift of 259.8% compared to their original page, as shown by the dark blue vertical bars:
This calculated, cumulative conversion rate lift had resulted in solid revenue increases. But we wanted to make sure that the calculated lift reflected the actual lift.
To do this, we ran a simple A/B test, pitting the client’s original page against the most recent variation. Not only did we validate the calculated conversion rate lift, we found that the actual lift was 282.2%!
This rigorous verification proves that the results from conversion optimization are not temporary. In fact, the results are, so far, permanent.
Find out your potential optimization ROI:
The ROI of conversion optimization is tangible and easy to prove because it’s baked into the strategy itself. With most other marketing strategies, you’re left guesstimating ROI; with optimization, each experiment paints a clear picture of your return on testing.
If you’re curious about your potential ROI from CRO, you should try out our ROI Calculator!