This is a guest post by our friends at Logical Position, an Oregon-based digital marketing agency.
There’s a famous saying in the advertising world from marketing pioneer John Wanamaker: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” It has always been important to prove to your clients that they’re getting the most for their money, but how do you go about doing that?
The online world and digital marketing have provided incredible opportunities for advertisers, who now can easily gain insights into their marketing efforts and learn where their money goes. However, navigating this mass of data presents its own challenges.
What is ROI, and how do I measure it?
The truth is, the way you measure and prove ROI (Return On Investment) can vary greatly depending on your business and its unique goals.
For instance, consider the different strategies and tactics that ecommerce businesses use compared to lead generation and service-based businesses — ecommerce businesses probably don’t see as much value in phone calls as they do in online purchases. On the other hand, service-based companies typically put more stock in contact form submissions and inbound phone calls.
To understand ROI for a given business, you first need to understand how the business operates, and what their goals are. That’s why it is crucial to have an in-depth conversation with the client to determine how they want digital marketing to fit into their business as a whole.
Why ROI is important
How do you know that your marketing dollars are being put to good use? Whether you’re investing in a paid search campaign, new car, or college education, getting the most bang for your buck is important in all aspects of life. It’s all about the value of your investment compared to the value of your return — nobody wants to spend more than they have to.
If your clients are losing money, aren’t aware, or lacking sales volume from online marketing, it may be time to adjust their marketing strategies and/or adjust their business goals.
How to prove ROI: Setting clear expectations
For brevity’s sake, in this post we’ll only discuss how to demonstrate and calculate ROI for paid search. All online marketing channels — search engine optimization, paid social media, influencer marketing, affiliates, email, etc. — will have different purposes, goals, tracking, and methods of proving ROI to the client. Use this method as a guide to starting conversation with your clients about proving ROI. Also, be sure to look beyond each channel’s silo, since marketing can influence customers (even if it can’t be measured by a last-click attribution in Google Analytics).
The perception of return on investment is a direct result of expectations set at the beginning of the campaign. Just because a client had success in paid search advertising several years ago doesn’t mean they should expect the same return out of their current paid search campaigns. Maybe their tracking was not set up correctly in the past, giving them an inflated perception of their ROI from pay-per-click ads.
Another factor is that the paid search advertising landscape has changed greatly in the last few years. There is less space for paid advertising on Google, and more people are competing for that space, creating a more competitive landscape in which it is difficult to stand out.
It’s crucial that you have a conversation with your clients about what realistic expectations are for their paid search advertising and how much ROI is possible, and what forms that ROI will come in.
Tracking Conversions
In prior eras of advertising, it was much more difficult to measure the effectiveness of your ad budget and how much ROI you would get from it. If you set up a billboard on a busy highway or ran a TV spot during a program with high viewership, how do you know how many purchases those tactics led to?
One of the best features of Google Ads is the ability to track conversions, which allows advertisers to see their ads’ effect on their business in real-time. Tracking conversions offer a clear insight into the ROI of your Paid Search advertising. If someone clicks on your ad and then makes a purchase, you can see how much you paid for that advertisement and how much revenue you brought in from the purchase.
Some businesses cannot sell their products or services online. As such, online purchases aren’t the only conversions that one can track via Google Ads. Lead generation businesses can measure phone calls, contact form submissions, app downloads, and other types of conversions as well.
Micro-conversions are also an important piece of the puzzle when it comes to measuring the ROI of your Google Ads account. There are many different points along the path to purchase besides the final acquisition, and micro conversions (small trackable victories that help push a customer down the path toward purchase) are a way to measure these steps and assign a value to them.
Talk with the client about their goals and which conversions are most important to them. From here, you can design your paid search strategy around the results that matter most to the client’s bottom line.
Calculating campaign ROI: Online vs. offline conversions
A particular campaign’s ROI depends on how you measure its success. You also need to measure the value of micro conversions and offline conversions throughout the sales funnel. This will give you the most accurate depiction of ROI, as well as the value of your online conversions.
While online conversions (e-commerce sales, phone calls, etc.) may be the clearest indication that your Google Ads have given you a return, they don’t show the full picture. Offline conversions are another huge part of how leads interact with brands and make purchasing decisions. These take place sometime after a consumer clicks or otherwise interacts with your ad.
When calculating ROI for e-commerce sites, we typically take the revenue from paid ads and divide it by the total amount spent on paid ads during a given time frame. For instance, if you spent $5,000 in Google Ads and made $25,000 in revenue, then your return on ad spend (ROAS) is 500 percent. Lead generation ROI is usually calculated by dividing your ad spend by the total number of leads (phone calls, contact forms, etc.) that you acquired, which tells you your average cost per lead (CPL). So, if you spent $5,000 for a total of 100 leads, your average CPL is $50.
Metrics used to prove ROI
The common metrics that marketers use to measure online marketing effectiveness are typically relevant for every website. However, the metrics that are most important to your business can vary based on your business goals.
Sales are an obvious metric to track success, but what about other conversions? Overall site traffic is another big one — without a foundation of traffic to your site, how will you generate sales? Online marketing provides an immense amount of data for you to analyze, but ultimately it comes down to which metrics are most important to your client.
For example, consider Hanna Andersson children’s clothing. This company had already established a successful online store, but they came to Logical Position to help build on their previous success and increase customer acquisition without sacrificing overall account efficiency.
In this case, where the client already has a profitable ecommerce site and a good return on ad spend (ROAS), the metrics used to show a positive ROI differ from the metrics that would be highlighted if the client was just starting their Google Ads efforts. The result of Logical Position’s work was a 403 percent increase in revenue and a 14 percent increase in ROAS, while simultaneously reducing cost-per-click (CPC) by 27 percent.
Each of these metrics shows the increases in revenue from the Google Shopping campaign as well its improved efficiency. By highlighting these metrics, marketers can prove to clients that their work has been profitable and benefitted the business and its goals.
How do you analyze ROI metrics?
If you utilize a marketing automation platform such as HubSpot, you have access to data related to your entire cross-channel marketing strategy. When reviewing these metrics with clients, you have to convey the data through the lens of the business owner. This will help owners understand how each metric affects them and how their online marketing efforts are helping their business.
For a smaller business that is starting to look deeper into online marketing, it may be useful to compare their current data to the same time period in previous years to demonstrate growth. More established businesses with seasonal or product-specific goals might be interested in driving traffic to a certain page or product rather than increasing traffic to the site overall. Whatever the case may be, to analyze the data from your online marketing, you need to look at it through the lens of your client’s business goals.
Analysis for ecommerce companies varies; it can be very simple, and it can also be complicated. If your product margin is 40 percent, and you’re getting over a 250 percent ROAS (revenue from ads is at least 2.5 times your ad-spend), you drove a profit. Many companies in the ecommerce space need to separate out brand and non-brand search for ROAS goals, and for deciding overall profitability. For many ecommerce companies it does not make sense for non-brand search to drive profit, but just break even. Profit will come from brand searches and email campaigns. Other ecommerce companies need to show profit on non-brand search, as they don’t get repeat purchases.
Lead generation companies will analyze ROI through lead close rates and lead costs. Whenever possible, try to match up leads from marketing with closed deals. For some companies, this means passing through UTM parameters in the lead form to the CRM. Some companies will also need to match up calls from call tracking systems (such as CallRail) to closed deals. Does the cost per lead make sense based on the close rate of those leads?
Tools and resources for producing ROI reports
Online advertising can lead to a massive amount of data. As such, it’s important to familiarize yourself with the resources at your disposal for reporting this data. Tools such as Google Data Studio and Google Analytics can provide insights into your ads, as well as customized reports that organize the data into a smaller, more digestible form. Google Ads, Microsoft Ads, Facebook, and other platforms include reporting tools built-in to the service.
It’s rare to find a one-size-fits-all model that works for reporting, so it’s crucial to assess the tools at your disposal and select the ones that can accurately and effectively report data from your marketing efforts. In many cases, the data tracking tools available through Microsoft Excel are the best tools for the job.
Proving cross-channel ROI
In a marketing utopia, we would be able to reach our potential customers through a single convenient channel and continue to reach out through the same channel. Returning customers would use this channel to continue their relationship with our brand. We would then be able to access the data from our marketing efforts via one convenient dashboard. Unfortunately, marketing rarely follows our idealistic view of how things should be. The reality of the situation is that there are countless channels for marketers to utilize. The most effective marketing involves meeting your leads where they are, which is seldom a single channel.
The first step for proving the ROI of your cross-channel marketing efforts is to define your objectives and what success looks like. Is the client’s business more focused on sales, or is increasing brand awareness a higher priority? Depending on your client, the goals of your cross-channel marketing can vary greatly. Once you establish these goals, you need to choose the best route for reporting these goals using the data at your disposal. You’ll also need to determine how much value you attribute to each marketing channel. This will allow you to build a detailed sales funnel for your clients’ online businesses based on the attribution model you create.
For instance, when Logical Position began working with Cocofloss in 2017, the brand had already established an effective ecommerce site that drove sales and was a profitable area for their business. Because of this, Cocofloss wasn’t interested in simply driving more visitors to their site. They wanted to increase their brand awareness and drive additional sales through Amazon by using their health-conscious mission to target frequent flossers at each stage of the sales cycle.
Logical Position utilized a multi-channel SEM strategy across Paid Social, Amazon ads, and highly-segmented paid search campaigns. The result? Cocofloss saw a 400 percent increase in multi-product purchases from their site, 5,000 new clients acquired via paid social, and a 78 percent increase in Q1 Amazon store sales year-over-year. Each of these metrics directly correlates with Cocofloss’ business goals.
By using metrics that relate to your clients’ goals, you can more easily show the value of your work to clients, regardless of their industry or type of business.
Attribution models
There are many different attribution models for you to choose from, and each of them has its own benefits. For example, the Last Click model focuses on the most recently used channel before purchase and applies the transaction’s full revenue to that channel. Linear attribution models, however, assign an equal value to each channel.
The right attribution model can help you determine which of your channels is most effective at turning leads into customers. As such, you must decide which model to use so that you can make the most informed decisions regarding your marketing efforts.
How do you calculate social media marketing campaign ROI?
Social media can be more complicated than paid search in terms of proving a return on investment to clients. Nonetheless, it’s still a crucial tool to use in your marketing efforts. For one thing, the nature of how people use social media is vastly different than how they use search engines.
Let’s take a pair of running shoes, for example. On search engines, ads for running shoes will populate when someone takes the effort to type in a search query related to the product. That tells us that the user is actively looking for that product; there is a desire to find running shoes. Ads function very differently on social media. A user might simply scroll past an ad for running shoes and click on it out of curiosity.
In other words, social media requires more digging through Google analytics and your site’s data to determine how much ROI your clients are getting from it.
How can you help clients understand ROI data?
You cannot send a data report and expect your clients to understand how your services are helping them grow their business and meet their goals. It’s important to remember that although you are focusing on the client’s paid search efforts, these campaigns are only a small part of their business as a whole.
What if paid search is getting a 500 percent return on investment, but the rest of their business is struggling? This is a case where your agency needs to show the client the metrics that connect to their business goals, and how paid search can help the company accomplish them.
At the end of the day, the client needs to feel comfortable that they’re spending their hard-earned money in ways that will benefit their entire business. 
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