Understanding ROI: The Basics
Ever had a client look at you with those worried eyes and ask, âIs this really working. â Thatâs the world we live in. The land of endless questions and performance metrics.
But when it comes to ROI, things are quite simple - you get back more than what you spend. If thereâs one thing you need to measure as a business owner or agency, itâs ROI. Every business, regardless of size or field, relies on a constant flow of cash to keep them going.
When you have investors or if youâre looking for outside funding, every move must be justified with hard data. More often than not, that means ROI calculations.
Now while measuring ROI is mostly arithmetic, there are several factors that can change how much value your campaign brings in. The first is the category of revenue itself. You can use lead numbers, signups or total sales depending on what end goal youâre chasing at that moment. More or less.
The way I see it, your ad campaign performance and investment over time is another factor to consider as returns often become more consistent over time. Sometimes it appears like everything in marketing is about numbers and how we play with them but I tend to disagree - numbers only help us strategise better and close important deals and partnerships. They donât inform decisions but rather reflect our current strategies so while closely tracking performance indicators like ROI helps justify campaign spends, they shouldnât be used as a crutch for innovative ideas either.
Key Performance Metrics for Success
Looks Like if youâve ever nervously clicked âsendâ on your first ever paid campaign, i see you. Itâs tempting to obsess over all the metrics at the same time but itâs worth taking the time to decide which metrics are most closely tied to your business objectives - and align with your core values too. For instance, you want to have campaigns that show that your team is good at collaborating and working together (thatâs what makes them effective), then you might look for evidence of healthy collaboration and processes in your metrics.
If youâre keen on increasing brand awareness and getting noticed, then impressions and reach would matter more to you. Now, there are a few types of metrics. There are sometimes the ones that tell you about general performance - engagement, impressions, conversions, click-through rates and return on investment or ROI. And then there are those that are more qualitative.
A lot of people make the mistake of completely ignoring these qualitative metrics. The way I see it, but it helps to keep an eye on both the quantitative and qualitative side of things - so you know how your audience is probably feeling about your brand and campaigns. More or less.
Sentiment analysis can sometimes tell you a lot about how well-received your campaign was (or wasnât). This includes not just comments and messages but also shares and mentions in online conversations. When a person shares your posts or talks about your brand, this indicates approval, support or interest - all signs that tell you that people like what they see. If itâs conversions youâre after, then itâs all about keeping your eye on the ball.
How many users visited your page. How many visitors followed through on the call-to-action. These numbers will help you understand what works (and what doesnât) so you can change things up accordingly.
How much did it cost for every click. Is there a certain segment or platform where most of your results came from. Once all of this is clear, you want to take a closer look at how well each ad performed.
This will help you see where the numbers are coming from and double down on high performing ads while changing up (or stopping) those that didnât work as well. The more time goes by, the more campaigns you run, the more data you collect - itâs only up from there.
How to Measure Customer Acquisition Cost
Youâre staring at a sleek new campaign dashboard and feeling pretty good about the launch, but then the finance team wants to know how much it really cost to score all those new customers. Thatâs when the stress sets in - because measuring what you spend to acquire each customer can feel like advanced algebra. And not necessarily because there are rather too many variables, but because they often donât play nice with each other. First things first: choose a time period.
Are you tracking this over six months. A year. Or since that product relaunch you lost sleep over. Start by adding up all your marketing and sales costs for that period, including ad spend, salaries for the content team, and customer service expenses, if you want to be very precise.
Divide that sum by the number of new customers acquired in that same window, and you have an average customer acquisition cost. Whether itâs a thousand dollars per person or just a few cents from Instagram memes, youâll now see what works. I think most of us end up forgetting to include some peripheral costs - maybe there was a one-off payment for a fancy video shoot or an agency consult - and those add up over time.
It can feel painful throwing every little receipt into the pile, but itâs worth tracking these extra bits so your averages are occasionally more accurate. If you want a more thorough calculation than average spend per customer for each campaign or channel (say print versus online), break down spending in each area. Once you start tracking these metrics on a regular basis, two things will happen: shock at how much money gets wasted and relief at discovering clever ways to cut unnecessary spend without reducing impact. It seems like if nothing else, it gives everyone around the office proof that your work is getting results and makes next yearâs budgets easier to defend with hard numbers.
The Importance of Conversion Rate Optimization
You know those shoes you ordered online that looked perfect in photos but fit like clown boots. Or the time you needed a last-minute birthday gift and abandoned your cart after the payment gateway threw a tantrum. Poor user experience kills conversions, regardless of how much traffic you get.
Conversion rate optimisation, or CRO, is about maximising value from your existing audience. Thatâs different from user acquisition, which has its own metrics and learnings.
Instead of fixating on how many people show up at your digital doorstep, CRO focuses on whether they actually buy what youâre selling. They say it costs five times more to attract new customers than to keep an existing one, but this isnât about retention - yet. This is about turning first-time visitors into paying customers. The way I see it, the thing about the conversion funnel is that it gets narrower with every step.
The more frictionless the journey from acquisition to checkout, the higher the conversion rate. Itâs important to track different traffic sources, landing pages, CTAs, and product descriptions for clarity and ease of use. If your UX is disappointing or outdated in any way, itâll reduce stickiness and repeat purchases over time as well.
CRO includes tracking actions like form submissions, sign-ups, downloads - anything that furthers engagement - apart from purchases. It can also be used to set up automated triggers that cross-sell and upsell based on customer behaviour. The most efficient e-commerce companies use these data points to create tailored experiences that boost satisfaction - and revenue.
Tracking Customer Lifetime Value Effectively
Youâve finished the final touches on your site and are ready to go. I Doubt but what now. What do you do next. For many e-commerce entrepreneurs, the hardest part of running a business is often keeping it going for years to come.
Getting a customer to make a sale is hardly ever one thing, but getting them to keep coming back is another story.
Thatâs where customer lifetime value comes in. Itâs about more than just tracking the return on investment of each person that shops at your store. Understanding the true value of your shoppers and their worth can help you get a better sense of where your business stands.
With it, you can know how much money each shopper brings in, how much you should spend to get them back, and how your business can grow over time. More or less. All in all, it helps you get a better sense of whether or not your business will even last.
Thereâs plenty of ways to track customer lifetime value and to make sure that itâs growing over time. You can use referral programs and points systems to get more people to come back and purchase more from your shop. It might also be helpful to look into running special discounts, creating email marketing campaigns, or offering additional perks for loyal customers. You might even want to try out different strategies for different kinds of customers, such as a system specifically built for repeat buyers.
Itâs all about getting creative and coming up with ways to keep shoppers coming back again and again for new purchases. Itâs not always easy to do, but in the long run itâs what keeps your business afloat and sustainable for years to come.
Analyzing Marketing Channel Performance
Think about trying to find your way through a dark maze with nothing but a torch. Thatâs what marketing is like if you donât know how your marketing channels perform. You know youâre in there but have no clue how youâll get out or which turns to take. If your campaign is in full swing, itâs fairly crucial that you know how well it is performing.
Are people clicking on your Google ads more than they are engaging with your social media posts. Maybe your email campaigns are doing better than both.
Marketing channel performance refers to the measurement of engagement, conversion, and revenue generated by various channels such as paid ads, email marketing, social media campaigns, etc. If something doesnât seem to be working out for you, it may be wise to reallocate the budget or resources elsewhere. It may take some time and effort to fine-tune this process and figure out what works best for your business but itâs quite worth it in the long run. Youâll probably have to experiment with different types of content in each medium - different platforms tend to favour different formats - but when youâve cracked that code, thereâs little that can evidently stop you from leveraging the various channels to get the best ROI.
Once you have all this information and insights on hand, monitoring these channels also becomes a breeze and helps drive further improvements down the line.