When you have a meal, it’s nice to know you are getting flavor, nutrition, and enjoyment. When you spend money on internet marketing, it’s nice to know you are getting back something to move your business forward.
Internet marketing Return on Investment, or ROI, is a measure of what you are getting in return for what you spent. It can be a measure this return in terms of of online sales, leads, or whatever your business goal for your internet marketing activities.
Effective internet marketing requires a significant investment in time and/or money. Nothing happens unless there is a commitment. Calculating a reasonable return and measuring progress helps you make and evaluate that appropriate commitment.
And here’s the method.
Return on investment (return-cost) / cost = ROI. For example:
Let’s say you have the following gross revenue goals for 2010-2012 based on the marketing you are doing now and the (hopefully) recovery of the economy
2010 – $100,000
2011 – $110,000
2012 – $120,000
And let’s say you want to improve your 2010 revenues by 40% in the first 12 months by investing in a significant internet marketing effort. As an internet marketing effort takes time to take hold, you might expect a 10% improvement in the first quarter, 20% improvement in the second quarter, and so on.
So your first quarter improvement would be $25,000 plus $2,500 or $27,500
Your second quarter would be $25,000 plus $5,000 or $30,000
Your third quarter would be $25,000 plus $7,500 or $32,500
Your fourth quarter would be $25,000 plus $10,000 or $35,000
Your 2010 total projected return for an investment in internet marketing would be the total of your improved projected revenues minus the total of your normal projected revenues, or $25,000
If your annual internet marketing cost were $10,000 your return on investment for the first year would be:
(Return – cost)/cost or $25,000 less $10,000 or $15,000 divided by $10,000 or 150%.
Your return on investment for the second year would be 175% and for the third would be 200%.
If you want to factor in your time, you can use this as an example:
Cost = Time 20 hrs/wk x $15/hr = $300/wk x 50 wks = $15,000
Plus $5,000 expense = $20,000
Now it’s your turn.
What’s your biggest challenge in measuring your internet marketing ROI?
Suzi Buzzee says:
Just use the formulas and do it!
Mauno Ahlgrén says:
You have the formulas right, but what is your professional opinion on how to make the distinction between the improved revenues caused by your internet marketing efforts and improved revenues from other business efforts?
I believe that many business owners and managers may give up on internet marketing and social media marketing simply because they do not believe that it is giving clear results.
Paul Carter says:
Good question Mauno,
You make the distinction by using a good Web Analytics program like Google Analytics (GA). With this tool you can track leads, sales, and other “conversions” distinct from other business efforts. Using GA “goals,” you can even track the keywords and websites that referred these conversions.
I agree that many business owners and managers loose interest for lack of such information.