by: Thomas Young
We have discussed in great detail the importance of strategic digital marketing ROI and how it connects to a successful digital marketing strategy. In this chapter, we will provide ROI examples and a system for tracking the ROI from website marketing. Tracking ROI is a necessary part of a successful strategic digital marketing strategy. This is easily done, thanks to Google Analytics and other web data tracking tools.
It is important to develop a method to accurately calculate ROI. Below are two ROI examples following a proven method based on the Four-Step Process. This method can be applied to your company using your web stats and data from your sales team. You may think this tracking is common sense and used by most companies. However, most businesses do not track strategic digital marketing ROI or have a process for accurately measuring online results.
The first example is ROI tracking from a typical lead generation website.
<h3)ROI Tracking: Lead Generation Websites
The majority of websites on the Internet are looking to generate leads for the sales team based, for the most part, on static website content. Here are the key components, with sample dollar amounts and conversion rates included, of ROI calculations for lead generation websites. You will need this information to accurately track the ROI from your company’s lead generation site.
Average Order: $2,500
This is the average order amount from individual sales. In this example, the average order value is $2,500, but in most cases average order amounts can be much higher and this does not take into account the lifetime value of a new customer or client.
Website Design and Development Cost: $10,000
This budget is the one-time spend to develop a basic website structure and the foundation for online marketing action items. This can include design, technology, content, photography and all other costs needed to launch the website and social media sites. This does not include the ongoing strategic digital marketing work for content, website updates and other strategic digital marketing costs.
Monthly Web Marketing Spend: $3,000
This is the amount of money spent monthly to market and maintain the website and on other online marketing efforts, such as social media and AdWords. Traffic generation is an important part of this budget and should include staff time and external contractor hours.
Total Monthly Website Visitors: 2,000
This is the total number of monthly visits to your website. This number can be either total visits or unique visitors. It is best to generally monitor total visits or sessions as the key indicator. This is part of the ROI equation controlled by web marketers. Generally, the higher the targeted traffic, the greater number of leads for the sales team.
Conversion Rate to Leads: 2.5 percent (50 leads)
This is the conversion rate of online visitors to sales leads. The number of leads divided by the site’s traffic equals your conversion rate. Keep in mind, there are many ways to convert website visitors into sales leads. The key factor here is that they have made contact with your company and are now in touch with your sales team. Target a conversion rate of 1 to 5 percent for lead generation websites. The better your website converts, the higher the amount of sales leads. This is an ROI factor you and the strategic digital marketing team can influence with excellent content and a high-performing website. Much of this book is really about maximizing this conversion rate.
Lead Conversion Rate to a Sale: 20 percent
This is a measurement of how successful your sales team is at converting a sales lead into a closed sale. If one out of every five sales leads converts into a sale, your conversion rate is 20 percent. Calculate this number by dividing the total number of sales orders by the total number of leads in that same time period. Most sales teams convert at higher than 20 percent and this is a conservative number for this ROI example. Sales teams with strong performance convert at 50 percent or higher, depending on the average order amount. For example, higher price points tend to convert at lower conversion rates.
10 Sales per Month = $25,000
This is the total number of monthly sales in gross dollars given the amount of sales generated by the sales team. Your average order amount times the number of sales equals gross sales volume. Remember, this represents gross sales and not profitability, which is a separate ROI formula based on how you manage and monitor expenses.
ROI Formula: Lead Generation Website
Here is the ROI formula for lead generation websites. Keep in mind this data is measuring gross sales or top line revenue. You may find other factors that are unique to your company to help calculate ROI and these numbers will change based on your costs and other factors.
Total Website Traffic x Online Conversion Rate x Average Order Amount x Lead Conversion Rate = Total Gross Sales.
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Here is what the formula looks like when we put in the numbers from the example above.
(2,000 x 2.5 percent) x $2,000 x 20 percent = $25,000
Divide this number by your total spend to determine your ROI percentage.
You can see from this example, $3,000 per month in strategic digital marketing spend is producing $25,000 per month in gross sales.
ROI Tracking: E-commerce Websites
The second ROI example is for e-commerce websites generating orders directly from an online store and shopping cart. Here are the key components of ROI calculations for e-commerce websites.
Average Order Amount: $150
This is the average order amount for individual orders placed on the e-commerce website. It includes groupings of various products and is a total order amount. Shipping costs should not be included in this number. E-commerce websites in general will need to produce healthy average order amounts to produce a solid ROI. Many e-commerce sites fail because the average order amount is too low and there is not enough traffic or sales to cover costs.
Website Design/Development Cost: $15,000
The total price of an e-commerce website is usually higher than the cost of a content-based, lead generation website and $15,000 is a good benchmark for basic e-commerce sites. Complex online shopping sites require higher budget amounts.
Monthly Web Marketing Spend: $4,000
This is the amount spent each month to market and maintain the website.
Total Monthly Website Visitors: 5,000
E-commerce websites survive on traffic generation and should work hard to grow website traffic, while maintaining conversion rates. This is the number of total monthly visits to the site.
Order Conversion Rate: 2 percent (100 sales)
Target a conversion rate of at least 2 percent. Some e-commerce websites have conversion rates as high as 15 percent or more. Seasonality also plays a big factor in conversion rates. For example, conversion rates increase substantially during holiday periods.
100 Sales per Month = $15,000
The website’s conversion rate is a direct indicator of online sales success. E-commerce sites with higher conversion rates are more profitable. The number of sales times the average order amount equals total gross sales for the month.
ROI Formula: E-commerce Websites
Here is the ROI formula for e-commerce websites:
Total Website Traffic x Online Conversion Rate x Average Order Amount = Total Gross Sales.
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Here is what the formula looks like when we put in the numbers from the e-commerce example above.
(5,000 x 2 percent) x $150 = $15,000
Divide this number by your total spend to determine your ROI percentage.
These calculations do not account for shipping and other factors that may impact conversion rates, average order amounts, and profitability.
Once you have set goals and you are accurately tracking website data, the challenge becomes finding ways to better market online and improve your ROI. Those are the goals of this blog and the benchmarks that define how you will win the website war! Go back and review each section to learn how to implement action plans that get results and improve ROI. Also, use the ROI examples in this blog post to determine your monthly ROI.
- Establish a strategic digital marketing ROI calculating worksheet that is unique to your company to determine ROI.
- Plug in your numbers and see what your potential ROI is from strategic digital marketing if you can improve traffic and conversion rates.
- Bring completed strategic digital marketing ROI worksheets to your next strategic digital marketing meeting for review and discussion.
- Learn more about strategic digital marketing to improve each part of the ROI formula.
Develop action plans for each part of the ROI process and track your results.