An ROI (Return on investment) calculator can help you evaluate the performance of your communications spend. Not many of my clients have thought about it, and it’s an important place to start when getting into digital marketing.
The basic premise is that you can add up all of the outcomes from a campaign and compare it to the cost of the communication. This helps you learn & evaluate performance in a more balanced and reasonable manor.
The numbers themselves are not particularly meaningful and are arguable, however, the value is when you COMPARE one campaign to another.
Here’s an example of using an ROI calculator
The Apple Co. ran two campaigns at separate times of the year. The goal of an apple company is to sell apples on their website (who’d have thought).
Campaign 1 achieved 10,000 visitors to the website, 200 orders, 12 enquiries & 500 email sign-ups. It cost $50k to run & delivered $13k of value, which equates to an ROI of $0.27.
Campaign 2 achieved 9,000 visitors, 400 orders, 50 enquiries & 500 email sign-ups. It cost $50k to run & delivered $24k of value, which equates to an ROI of $0.49.
Now you can more easily compare the performance of each campaign. Campaign 1 returned $0.27 and campaign 2 returned $0.49, so campaign 2 was nearly twice as effective.
How to create a digital marketing ROI calculator
Step 1. Create the measures
- Visit to your website
- Subscription to email database
- Enquiry
- Online order (or booking, or request)
- New facebook friends
Step 2. Assign values to the measures
For example, a visitor might be $0.10 and an order might be $50. (Or the value of the order might actually be the sale value, or profit margin. Google Analytics can report on this, read their blog here).
Step 3. Track & add the values
Collect all the data, how many visits, orders, enquiries etc and multiply them by the value you assigned in step 2. For example, 500 orders would be 500 X $50 = $2500. (Based on example above). Then add all of these values together, this is your Outcome Value.
Step 4. Divide that value by the cost
If your final outcome value is $2500, then divide that by the media spend, assume it was $4000, that would be $2500 divided by $4000 = $0.62.
Step 5. Compare campaigns
As I mentioned earlier, the ROI value you come up with is kinda meaningless, unless you compare it to other campaigns.
Step 6. Get sophisticated
If you want to take it to the next level, you should have different calculators for different campaign objectives. For example the above is very sales focused, however, your objective might actually be awareness of a new product or service. Have an ‘awareness’ calculator would put more value on the reach & visitors, less on the orders. Then you can fairly compare awareness campaigns separately to conversion campaigns.
Also, you can apply this methodology to each piece of activity, for example, you could compare the ROI of search to the ROI of banner, EDMs or Social Media.
Here’s a template
This template should get you well on your way: http://www.box.net/shared/i6x105jfil
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