How to Determine Your ROI in Your Digital Marketing Budget

Anyone who is responsible for allocating and spending money to generate revenue should have a simple way to know if their activity is generating business. This is why return on investment (ROI) is an essential metric for any business.

Return on investment is a mathematical formula used by investors to evaluate their investments and judge how well a particular investment has performed in comparison to others.

A common way of calculating your ROI formula is to divide your net profits by the total cost of the investment. The easiest way to understand these numbers is by establishing a revenue to marketing cost ratio. This ratio represents how much money is made for every dollar spent on marketing.

 

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For example, five dollars in sales for every one dollar spent on marketing produces a 5:1 ratio of revenue to cost. 5:1 is a strong ratio for most businesses, while achieving 10:1 is considered outstanding. However, your target ratio depends on your cost structure and will vary depending on your industry. 5:1 is a great benchmark to aim for. Anything above can be considered a long-term goal.

When calculating your ratio, include any incremental cost incurred to execute a digital marketing campaign. This includes:

  • Pay-per-click spend
  • Display ad clicks
  • Media spend
  • Content production costs
  • Outside marketing and advertising agency fees

The ratio allows you to see if campaigns have passed or failed, and is helpful when deciding whether or not to go ahead with a strategy. Retargeting campaigns can result in a higher ROI – businesses who retarget are 70% more likely to convert (Digital Information World).