Digital marketing refers to the marketing of products or services by the medium of the internet. Digital Marketing is also known as online marketing. In this type of marketing, various products or services are advertised online, such as emails, social media, websites, mobile apps, etc.
Digital marketing is an integral part of marketing in today’s era. A company needs to have an online presence to maintain its market existence and advertise its products or services.
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Traditionally, digital marketing was not in much use by companies, but digital marketing is now a vital part of the marketing field with the growth of technology. Nowadays, digital marketing is widely used by individuals and companies to promote their products or services in the market. It is cost-effective and reaches a large number of people in a shorter period.
What is Return on Investment or ROI in Digital Marketing?
Return on investment or ROI means the profit or loss you earned on digital marketing campaigns. It is a measure that defines whether you are getting a good return on your investments or not.
- ROI is essential to be studied by the businessman or the company as return on investment shows whether the investment is profitable or incurring losses to the company.
- ROI can be positive or negative. If the return on investment is greater than the initial investment, then it is said to be a positive return on investment, whereas if the return on investment is less than the initial investment then, it is said to be a negative return on investment.
For instance, a company invests in various projects, and to know whether the investment is profitable to them or not, ROI is useful. Return on investment shows whether a particular investment gives the required return that the company wishes to earn.
A company should yearly determine the return on investment of each project so that a proper analysis can take place. ROI of projects should be compared yearly so that the company can take timely action on investment that does not provide the desired result in digital marketing campaigns.
Significance of Return on Investment or ROI in Digital Marketing:
Return on investment is an important part of digital marketing as it helps strengthen the company’s financial position by specifying where the business stands and what can be improved.
It is a key indicator of the profitability of digital marketing campaigns.
It is an easy method to understand and adapt for the betterment of a digital marketing campaign.
It is a measure used to identify and improve the areas that need improvement in digital marketing campaigns.
Return on investment can be measured in percentage. It provides a comparative number that can be compared with the ROI of different years of any particular investment in digital marketing campaigns.
It also influences critical business decisions in digital marketing campaigns.
It must be calculated by all the organizations or firms, whether big or small, as it shows the return a company is earning on expenditure made. It indicates whether an appropriate investment is made or it is only a wastage of the company’s money.
Return on investment is significant for digital marketing as it shows which campaign will give greater returns to the company and helps in selecting wisely.
The ratio for Return on investment:
The strong ratio for return on investment is 5:1. If any company has a 5:1 ratio, it has good investments. There is also an exceptional benchmark ratio which is 10:1 that can be achieved by extraordinary companies only. A company or digital campaign should target the ratio as per its structure and business as all the campaigns are not of an equal front. Each campaign has different objectives and costs, so the targeted ratio should be chosen accordingly.
How to measure Return on Investment :
Measuring the return of investment is vital to prove digital marketing success. It is crucial as the company can evaluate that the funds which are put into investment are providing the desired return and no penny is wasted in digital marketing campaigns. Measuring return on investment also shows whether the strategies of the campaign are accurate and helpful in providing the estimated return or not.
Return on investment can be measured easily as it does not require any complicated tools. It shows the profit earned out of the digital marketing campaigns. One of the simple formulas for ROI is to subtract the total investment from the total revenue of digital marketing and then divide the resultant number by the total investment in a digital marketing campaign.
Here are some common ways to measure ROI in digital marketing campaign :
1. Cost per lead-
The cost per lead formula is effective when the digital marketing campaign aim is to collect new leads. One can measure how much payment is made to the new lead. The simple formula is to divide the expenditure by the total number of leads.
2. Customer lifetime value-
It is an important formula as it states how much an average consumer will spend as a consumer. This formula defines the long-term profit that one can gain from the customers.
3. Average order value-
This is very useful for E-Commerce businesses. The average order value signifies the value of all customer’s purchases.
4. Lead to close ratio-
The lead to close ratio is calculated by dividing the total number of leads by the leads which have been closed. This formula helps determine the quality of the leads and the profitability of sales in digital marketing campaigns.
5. Cost per acquisition-
The formula for cost per acquisition is to divide the total expenditure on the digital marketing campaigns by the number of acquired consumers. This formula is important in understanding how much a digital marketing campaign is spending on acquiring customers.
How to improve ROI in digital marketing campaigns :
There are many ways to improve the return on investment of digital marketing campaigns. A campaign has to select from the various ways as every campaign has a different structure, objectives, cost so the same plan can not be implemented for all the campaigns. ROI can be improved by increasing the sales of digital marketing campaigns. It is important to improve customer relations and create a customer base to improve ROI. The campaign needs to calculate and analyze the campaign’s return on investment every year to improve it. A proper analysis is of vital importance. To improve the ROI, the objectives of the campaign are to be taken into consideration, as all campaigns have different objectives to be fulfilled. Improving ROI is not an easy task but following the easy ways, one can improve the ROI in digital marketing campaigns with a good online marketing strategy using the following steps:
1. Always keeps a check on how much money is being spent on a digital marketing campaign.
2. Calculate and analyze the ROI regularly, whether monthly, quarterly, or yearly.
3. Experiments on different marketing channels so that one can understand which channel provides the highest ROI.
4. Always aims at increasing the ROI. The higher the ROI, the better it is for the digital marketing campaign.
The Bottom Line
ROI plays a significant role in digital marketing since it helps measure if an investment in a digital marketing campaign is not bringing the desired results. With advancements in technology, digital marketing is one of the most lucrative career fields in the 21st century. Various institutions such as Great Learning provide innovative courses on Digital Marketing to enhance your skills and establish a successful career.