The main principles of running a successful business are very simple. Provide excellent customer service. Offer a superior product or service at the right price. Go above and beyond for your clients and customers. And don’t spend more than you make.
Many businesses can check off the first items on this list, but not the last. That’s because business owners struggle to make sense of all the acronyms found in the digital marketing metrics world. In fact, 46% of businesses don’t know if their digital marketing efforts are working for them at all. Even if they do know the difference between CPC and CTR, they don’t know what effect these numbers have on their bottom line.
Here’s a look at some of the most common digital marketing metrics that will actually help your business become ROI positive in 2019.
What Does It Mean To Be ROI Positive?
ROI positive marketing simply means that you earn more than you spend in marketing, and it’s one of the most important digital marketing metrics you should measure. For example, if you spent $1,000 dollars on a Facebook ad campaign which generated you $1,500 in product sales, you would be ROI positive. If that same $1,000 was spent on PPC ads and you earned just $200 in product sales, then this marketing channel would not produce ROI positive results for you.
The ROI formula looks like this:
(Dollars you made - Dollars you invested) / Dollars you invested
In the case of the Facebook ad campaign, your ROI formula would be:
($1,500-$1,000) / $1,000 = 50% ROI
In the case of the PPC ad campaign, your ROI formula would be:
($200-$1,000) / $1,000 = -80% ROI
Why Monitoring Digital Marketing Metrics Is Crucial
Business owners who are really on top of their game can cite their average ROI per marketing channel. Most businesses, however, have no clue how much money they earn from their different efforts. They invest a little bit of money in everything, and if they have a surplus at the end of the month, they think they’re doing pretty good.
This type of thinking can land you in trouble. When sales don’t meet your expectations, you have no idea how to fix it, because you don’t know where the problem is. You’re also missing out on opportunities to explode your company’s growth because you don’t know which marketing channels are the most profitable for you that would merit an increase in marketing spend.
If you keep track of these digital marketing metrics for each of your marketing avenues, you’ll be able to identify where you should invest more money to earn even more profit and which underperforming campaigns should be dropped or modified.
The Most Common Digital Marketing Metrics
No matter what kind of digital marketing you’re investing in, you’ll want to keep track of these common metrics so you can better understand your ROI.
Cost per Acquisition (CPA):
This term applies beyond the world of digital marketing, but for the purposes of this blog post we’ll explain it in terms of digital marketing. Your cost per acquisition is the amount of money it takes for you to acquire a new customer. This amount varies widely between industries and sectors. For example, the law firms we work with can expect to have a higher CPA than a local salon would, for example. For some businesses who focus on high-end products and services, the CPA could be well into the thousands.
Let’s say you spent $1,000 on digital advertising. With your $1,000, you’ve earned 10 new customers. Your cost per acquisition is $100. So it costs you $100 for every new customer you get through this marketing channel.
Is that CPA too high for your business? The truth is, it depends. The most important thing to note about CPA is that the number is lower than what you can expect to earn over the entire period that your new customer will do business for you. That leads us to our next digital marketing metric to measure: LTV, or Lifetime Value.
Lifetime Value (LTV):
The lifetime value of a customer is how much you can expect to make from a customer over the entire relationship you’ll have with the customer. Though you may lose some money on the first transaction, if your business excels at providing an excellent experience for customers that keeps your customer retention rate high, your initial loss could turn into big profits for you.
Let’s say that you run a salon and you offer a discount to new customers, which you promote through Facebook ads. You’ve done the math, and you’ve calculated that it costs you $45 to get a new customer into the salon. On that first visit, they’ll only spend $30, since they have a coupon. Doesn’t seem like a great deal, does it? You’ve just lost $15.
But you know that your average salon visitor stays with you for a two-year period on average and comes in every three months, spending $75 per visit. Now, you can calculate that $45 you invested in a new customer will actually get you ($75 x 7 visits over two years) + $30 for the first visit - $45 you spent on Facebook ads = $510 profit.
Most business owners would be happy to spend $45 to get $510. Wouldn’t you?
Conversion Rate (CVR):
The conversion rate is the percentage of people that becomes leads or customers from different channels. For example, if you’re running a PPC ad campaign that asks for someone’s email address in exchange for an ebook, your conversion rate will be the percentage of people who signed up for your offer.
If there were 100 people who visited your website and 3 people signed up for your ebook, your conversion rate for this offer would be 3%.
You can also measure your conversion rate in a different way, depending on what your call to action is. If you use that same PPC ad to send people to a product page where they can make a purchase, then your conversion rate would be calculated based on the number of people who bought your product.
If you sent 1,000 people to your suede boot product page, and 5 people made a purchase, your conversion rate would be 0.5%.
Remember, to calculate your conversion rate, you must first decide what the main action is that you want a site visitor or ad clicker to take. If your conversion rate isn’t directly measuring the cost of a sale, then this number should be part of the entire system you look at. In the first example, you could have a very high conversion rate when it comes to people downloading your free ebook, but if you aren’t able to convert any of those leads into sales, your conversion rate won’t mean much in the way of your bottom line.
Lead to Close Ratio:
Your lead to close ratio measures how many leads it takes you to get to a sale. If you need 10 leads to get to 1 sale, your lead to close ratio is 10:1. Similar to the conversion rate metric above, your lead to close ratio only tells part of the story.
Let’s say that your sales team receives leads from your website when a site visitor fills out a contact form. You know that your team closes roughly 1 person for every 5 they talk to, giving you a lead to close ratio of 5:1. Not bad.
However, there are other factors to account for to calculate your true ROI. For example, you should know much a new customer is worth, and how much it costs for your sales team to close that lead.
If your sales team has to spend roughly 10 hours’ worth of meetings, emails, calls, and visits to convert someone who is worth $250, this may not be worth your sales team’s time. Why? If they earn $25 an hour, plus a commission, you’ll be out money by the time this lead comes around. You also have to factor in the time they spent talking to the other leads that didn’t close. Ideally, each lead that converts into a customer should be worth more than all the time it takes for your team to convert that person and talk to all the others too.
The expertise of most digital marketing agencies stops here. At AMJ Sales and Marketing, we don’t just specialize in getting leads, but converting them as well. Find out about our sales consulting services here.
Cost Per Click (CPC):
This metric is used most in the world of digital advertising. Many digital marketers who manage ads on behalf of others pay close attention this metric. Having a CPC that’s too high could indicate trouble with the ad itself, the targeting of the ad, or something else entirely.
Most digital ad platforms, whether it be Facebook ads or Google Adwords, make it easy to view this metric per ad set. Let’s say that you’re running an ad campaign through Google Adwords. You’ve set a lifetime budget of $3,000. Once the campaign is done, you see that you got 546 clicks on your ad. Your cost per click for this campaign is $0.18.
However, similar to the lead to close ratio, a low CPC doesn’t necessarily indicate a successful campaign if no one who clicks your ad becomes a customer. And a high CPC isn’t always problematic if your conversion rate keeps you in the green.
Putting It All Together
Let’s look at an example that demonstrates how all of these numbers work together, and how to look out for metrics that could be misleading.
A personal injury law firm has $10,000 to spend on a digital marketing campaign this quarter. Their goal is to get two new customers with their marketing spend, because each customer has a lifetime value (LTV) of about $12,000. Therefore, they hope to spend $10,000 and earn $24,000, netting them a profit of $14,000.
A digital marketing agency reviews their goals and decides to spend their money in Bing Ads. For $10,000 at Bing, the ads get 342 clicks. 100 people fill out a form to be contacted for more information. 10 of those people become customers.
So, for the Bing ad campaign, their digital marketing metrics are as follows:
Cost per click (CPC): $10,000 / 342 clicks = $29.24
Conversion rate (CVR) on the landing page: 100 people fill out the form / 342 view the page = 29%
Lead to Close Ratio: 100 people filled out the form and 10 people became a customer, so their lead to close ratio is 10:1
Cost Per Acquisition (CPA): $10,000 ad spend / 10 new customers = $1,000 CPA.
In this case, is it worth spending $1,000 to get a new customer? Many business owners would balk at this number. But for this law firm, a $1,000 CPA is entirely worth it. Why? Because the lifetime value (LTV) of each customer is $12,000. So the law firm is spending $1,000 to earn $12,000, giving them an ROI of:
($120,000 - $10,000) / $10,000 = 1,100% ROI
There are hundreds of digital marketing metrics that can be measured. But the most important metrics are those that reveal what your ROI is and the effect that your marketing dollars have on your bottom line. If a metric isn’t informing you how to better spend your marketing dollars, then focus your attention elsewhere.