Calculating Your ROI on Internet Marketing

July 19th, 2010 • By:  • Business

If your business is pursuing any form of online marketing, then it is likely that you have tried to work out your return on investment; the amount of sales that you can directly attribute to certain activities versus their costs. Whilst this kind of activity isn’t simple, it is possible to get an approximate figure and justify your online advertisement spend as you move from offline advertising to online, where people are spending an increasing amount of their leisure time.

Like with almost any kind of advertising, the results cannot be wholly measured. In the same way that it is hard to measure the effectiveness of a TV spot or newspaper print advertisement, it can be hard to completely measure the impact of online advertising. For example, web users may see your brand in a number of locations, building up an idea of your business and visiting an offline location as a result.

However, online marketing is more quantifiable than the ‘traditional media’ methods of advertising. With Google Analytics, businesses are able to track visitors from other websites and search engines to get an idea of the amount of traffic and sales that can be attributed to online marketing, depending on the type of internet marketing service being performed.

Before we get into the specifics, first note that to get the best results either e-commerce or goals should be set up correctly in your Analytics program. Even if your site isn’t e-commerce in nature, it should still have clearly defined goals and have a dollar value attached for each conversion. If the goal, or purpose, of your website is to have people sign up for a newsletter, and you know that 1 in every 50 subscribers will purchase a $50 service offline, then you can value each new newsletter subscriber at $1. Without having a dollar value attached, your analytics program can only calculate the number of customers gained, not their value.

Pay Per Click

PPC or Adwords campaigns are the most quantifiable form of advertising and can be easily tracked by linking your Adwords and Google Analytics accounts. This then produces a new report within the ‘Traffic Sources’ section aptly called ‘Adwords’ to review the traffic sent from paid Google listings. By clicking on the ‘Clicks’ tab of any of these reports users can get a complete breakdown of revenue, costs and ROI;

ROIPPCthumb

However, even this information isn’t entirely accurate and needs to be understood in context. What if searchers see your listing and go to your site directly or remember your brand name, for subsequent visits, without clicking on the advert? What about visitors who click the listing, but don’t purchase until several days later on a different computer or having cleared their cookies?

The information is by no means 100% accurate, but it is certainly a good starting point.

Organic SEO

Of course at Vertical Measures we’re more interested in the results of organic listings in search engines (we don’t offer PPC services here), which is trickier if only for the fact that Analytics doesn’t know how much you are spending on your efforts to rank for different keywords. However, if you keep track of how much you are spending on your organic SEO campaign, you can use this data in conjunction with the information in Analytics to get similar data of PPC.

So that you can be sure you’re only looking at organic search traffic, you need to select the ‘Non-paid Search Traffic’ from the Advanced Segments in the top right corner of your screen. This will update every report you look at to include only this information, so be sure to change it back to ‘All Visits’ when you are done.

ROIOrganic1thumb

Now that you are looking at only this information, find the value of this traffic by going to your E-Commerce or Goal Value reports to see the number and value of visits attributable to your organic effort.

You can then get even more granular by looking at individual keywords in the Keyword Report within ‘Traffic Sources’ in the left hand navigation. This report should look very similar to the reports you have for AdWords – only without your costs. Using this data you can see the value of each visit, the number of visits you received and how well they converted. You can then combine this with your separate SEO spending figures to see your cost per click and ROI for each keyword.

ROIOrganic2thumb

However, where it gets difficult is in the long tail, or terms you are not directly targeting. Having great content is likely to bring in traffic from a variety of keywords; don’t neglect to include this in your calculations! If you have been targeting just the keyword ‘desks’ and ‘mahogany desks’ is bringing in traffic, don’t exclude this from your ROI calculations.

In exchange for the slightly less measurable results of organic search results compared to PPC, it does have one huge advantage in that it is a long term strategy that will continue to pay dividends. As we like to say here, PPC is renting the house, SEO is owning the home. Whilst you may spend a lot one month on SEO and not see traffic increase accordingly, being ranked highly in SERPs will last for the foreseeable future and continue to send traffic to your site. You will then continue to receive traffic even if you don’t invest in SEO one month, whereas with PPC once you’ve spent your budget the traffic comes to a grinding halt.

Social Media

Another area of Internet Marketing that many businesses would like to see a measurable return on investment is in their social media efforts. As with PPC and SEO, It is  possible to get a rough idea of how your efforts in this area are performing via Google Analytics. Make sure you are looking at ‘All Visits’ in the Advanced Segments, and then go to the Referring Sites report in Traffic Sources. Next click on the Goal or E-commerce tab for the following information;

ROISocialMediathumb

This report again shows the number of visits, the conversion rate and per visit value, helping you to identify where the best traffic is coming from and understand the return on your investment for your efforts in these areas. When you scan this list of websites look out for not only websites like ‘twitter.com’ but also any URL shorteners or twitter clients such as ‘hootsuite.com’, ‘ht.ly’, and ‘ow.ly’ in the screenshot above.

Again, the area where this kind of quantitative return on investment calculation falls down is that sometimes the rewards of social media aren’t always obvious. Much like TV advertising, the goal in having a strong following on social media is primarily to build brand awareness that may then result in customers knowing your brand to help you to stand out from your competition. Judging your efforts by direct goal conversions alone can be dangerous and lead you to cut back in areas that are meeting their goals.

Conclusion

To conclude, measuring ROI for your internet marketing is possible, but it isn’t an exact science. Like with TV and print advertising of the past, the full rewards are not directly attributable, such as brand awareness and recognition. You also need to fully understand how Google Analytics (or your analytics program) treats campaign conversion attribution (Click here and watch Slide 10).

However, despite these few restrictions, by digging into your analytics you are able to directly attribute revenue to your internet marketing. With information on clicks and sales from PPC, organic search, and social media, you can allocate spending to only the beneficial areas to get the most impact on your bottom line, gaining a competitive advantage over your competitors.

If you would like to see greater ROI on your internet marketing efforts, you could contact us or look at our website marketing services to identify the areas where your online business can be improved.

James Constable

James is a Campaign Manager at Vertical Measures, looking at client’s Internet Marketing from a strategic viewpoint to get them the best possible results for their business needs and budget. His blog posts revolve around strategy, analytics and keyword selection.

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This entry was posted on Monday, July 19th, 2010 at 5:00 am and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

10 Responses to “Calculating Your ROI on Internet Marketing”

  1. Pervara Kapadia Says:

    Yes as you have rightly shared James it is time we measure Social Media but in a more relevant method.

  2. Geary Interactive Says:

    Great post that covers paid, SEO, and social. But I think that SEO can get it's own entire post in this regard. One of the most difficult parts of selling people on doing SEO is getting across to them the lifetime benefits of SEO. The ROI of SEO gets greater with each day that passes. And a year or two down the road, long after you have stopped paying for SEO (hopefully you have not stopped but many do), it will still be bringing targeted traffic and sales to your site! A sort of marketing equity, as Hugo Guzman would say, http://bit.ly/9jImVP.

    People tend to look at SEO ROI in terms of months when you really need to look at it in longer terms. It can and does produce ROI in months but that is not the norm, especially in competitive niches.

    I've seen some interesting ways of calculating this but I would love to hear your take on it.

  3. James Constable Says:

    Hi Geary. Thanks a lot for your comment, we did think about breaking the post up into a series of posts to look at it in greater detail, but decided in the end to start with this and perhaps focus on different areas separately.
    In terms of what you've said about SEO being a long term strategy, your absolutely right, and I hope this came across in the post. A few months of SEO and link building can pay off for years, which is obviously great, but makes it harder to measure. With businesses so focused on the short term and ROI perhaps this is why a disproportionate amount is spent on PPC. I hope that at least by looking at some of these methods businesses can understand some of the return they are seeing.

  4. Geary Interactive Says:

    Thanks James. I guess I am always looking for the magic formula to express lifetime value of SEO. But that is chasing a dream as every situation is different, and you need real sales/conversion data in order to predict accurately. Great post though!

  5. Andy @ FirstFound Says:

    I've seen dozens of ways that people can calculate ROI for online marketing, but I think this is the first one to adequately cover search, social and paid. Thanks for this, it'll be very helpful.

  6. Quality link building Says:

    Hi

    Thanks for sharing such informative article about the importance of Content in SEO. Content comes on the top of the most important techniques when it comes to increase visibility of your website on search engines as well as to attract traffic into your website.

  7. Dan Patterson Says:

    Great tips. Its so crucial to be able to show a client how your efforts are really affecting their business. I find it's also helpful to break the organic data into keyword sets to help clients understand that we're going after more than just the head terms. Since individual long tail terms may not generate much, showing them in a set can show a better cumulative affect.

  8. Affiliate Program Manager Says:

    This sounds promising. Its always hard to drive heavy traffic through your site without spending a small fortune

  9. Sid Brackenbury Says:

    Hi, i think that i saw you visited my weblog thus i came to “return the favor”.I’m attempting to find things to enhance my site!I suppose its ok to use a few of your ideas!!

  10. Randy Culen Says:

    Thanks James. I desperately need this information. I’m trying to learn to develop my blogs. I will try all suggestions from you.

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