How to guarantee shareholders understand your ROI
This guest post was written by our friends at Edison21, a digital marketing agency that specializes in PPC advertising and reporting for Shopify store owners.
ROI (return on investment) is a surprisingly tricky metric to track and communicate in your digital marketing campaign. Proper ROI reporting shows if a digital campaign is working and a product or service is doing well, and whether it requires a few additional essential pieces to work correctly.
Before digital advertising, ROI was both easier — and harder — to prove.
For instance, buying a TV ad theoretically allowed access to a percentage of viewers, but Nielsen and their self-reported viewer tracking could only guess at how people many actually saw the ad run on TV. Still, this kind of reporting process was long accepted as the best way to understand TV ad campaign ROI.
With digital tracking this kind of guessing has been reduced, but not eliminated. Between the multiple platforms involved — Google Analytics, Google, Facebook, LinkedIn, Amazon, and eCommerce platforms — it can take expert-level analysis to not only determine ROI of each campaign and communicate those results simply to stakeholders.
Today, we’re going to cover four essential steps for ROI reporting for you or your clients:
- Establish clear goals for what you’re looking to accomplish with your digital campaigns
- Identify the formula you’ll use to calculate your return on investment
- Ensure accurate tracking is in place so progress to goals is measured accurately
- Customize reports based on the stakeholder and the type of decisions they’re looking to make with their data
First, let’s talk about goals
Before we get into the nitty-gritty of ROI reporting and tracking, it’s crucial to understand what (and why) you’re tracking at all.
Is your goal more online sales? Brand awareness? Greater social media followings? Lead generation form submissions? While any of those examples are suitable, they all have unique metrics and often are communicated under a different context.
These goals should be clearly stated in every report, ensuring clients see a clear progression over time. Keep it simple, keep it straightforward, and keep them separate — your clients will appreciate it.
Now let’s jump into the good stuff: Measuring, tracking, and reporting on ROI.
How do you measure ROI?
ROI is an important indicator of whether a campaign is generating the desired result.
For example, if an eCommerce company spends $1,000 on advertising and those campaigns generate $5,000 in sales, the campaign ROI is 5x their cost with 20% of total revenue going towards those ads.
If that 20% is lower than their margin, the company will have a profit. If not, they’ll be losing money on each sale.
ROI can be measured three main ways: the above, revenue minus advertising spend, is great for one-time purchases, but the simple equation often lacks all the additional expenses that come with a digital marketing campaign.
The second, calculated using customer acquisition cost (CAC) and customer lifetime value (CLV), works best for repeated purchases and subscriptions.
- The formula for CAC is marketing spend divided by the total number of new customers.
- CLV is calculated by multiplying average purchase value by purchase frequency to get average customer value (ACV) and then multiplying ACV by average customer lifespan.
- Finally, subtract CAC from CLV to get a great measure of how your business is doing or divide CLV by CAC to get your ad spend to customer lifetime value ratio.
For practice, let’s use Netflix as an example.
Netflix’s average monthly subscription price is $12.66 (add up each tier, divide by three). Let’s say Netflix is offering a free monthly trial and, for simplicity’s sake, ignore Netflix’s other marketing costs and plugin $12.66 as the CAC. After that, let’s assume Netflix churn rate (monthly customer loss) is a steady 5 percent.
A monthly churn rate of 5 percent tells us a customer typically stays with Netflix for 20 months (1 / churn rate = customer lifetime). $12.66 per month for 20 months gives us a customer lifetime value of $253.20. Divide the CLV by CAC for a ratio of 20:1, or subtract $12.66 from $253.20 to get a lifetime revenue of $240.54.
While Netflix clearly does not have a 20:1 ad spend to lifetime revenue ratio (remember, we didn’t add in their monthly marketing/advertising budgets), you can see how these numbers work to tell a story on the effectiveness of campaigns.
Many digital campaigns look for returns around 4:1 or 5:1, but we’ve seen higher and lower depending on the business.
The last kind of analysis, and the one most often used on digital projects or campaigns, is simply the first equation with more expenses included.
In sum, comprehensive ROI reporting and tracking for a campaign requires labor or agency costs, ad spend, online subscription services, and other marketing costs.
Measuring ROI progress starts with good processes
We’ve established our goals and how we will measure ROI, so now it’s onto creating the process for measuring success.
ROI tracking isn’t useful unless all the data is accurately tracked, so that’s where we begin.
First, we determine which areas need tracking. Conversions should be based on your business and goals. Form submissions? Yup. Phone calls? Yes again. Purchases? You betcha. Ad clicks? Pageviews? Both helpful, but less so than more solid leads or actual customer conversions.
Next, your PPC or marketing agency needs to set up your conversion tracking based on your goals and check that conversions are firing when they’re supposed to.
Conversion pixels, the code that records conversions, will track client actions throughout the sales funnel, making it far simpler to keep track of customer touchpoints.
Now you can accurately track prospects when they interact with your brand and complete the desired goals which is absolutely critical to start showing ROI.
Building the perfect report
After ensuring all data is being tracked correctly, the next step in ROI tracking is using a platform that aggregates data from multiple sources.
There are lots of different platforms involved in PPC reporting — Google ads, Facebook ads, eCommerce platform reporting, to name a few — and they all pull data in different ways.
We’ve found NinjaCat to be a useful tool as it allows agencies to holistically examine data by pulling from wherever your efforts touch. Need Facebook clicks, Instagram views, and Google analytics all in one place so you can see how your campaign is fairing across each channel? Want to compare clicks of views across different websites or web apps? NinjaCat allows users to slice and dice data any way you need it. (Plus it integrates nicely with CallRail!)
If you’re not ready to purchase an expensive reporting software, CallRail offers form tracking, call tracking, and integration with the major ad platforms to start monitoring ROI between your various ad platforms. It’s a great place to start.
Comparing results from Google ads to Facebook ads can show patterns that may not be visible on one platform alone, or could highlight when Google sees a drop in traffic while Facebook spikes.
Having the ability to track lead forms and phone calls alongside ad traffic — which CallRail is built to do — gives agencies and their clients the ability to see more than just clicks and page views. The power to see real business interactions turn into qualified leads and sales is what this is all about.
After ensuring data is tracked correctly and choosing a platform to aggregate that data, it’s time to pull out interesting insights.
When building a report for client stakeholders, make sure you start with data that’s valuable for them, both short and long term. Remember that senior-level people are looking to talk returns and bigger trends (months maybe years, not days and weeks), instead of impressions, clicks, and other low-level data more useful to internal marketing and advertising teams. Thinking macro, not micro, will allow the data to tell a story far beyond the raw numbers.
Snapshot views are quite helpful — think one-page spreadsheets with key metrics highlighted; sales funnel visualizations with numbers, and even country comparisons depending on the client. Stick with summaries and main data points — stakeholders want valuable data but too much can overwhelm. Examples include:
90-day baseline reports showing historical performance next to benchmarks which provide a roadmap for future optimizations
Monthly check-in reports displaying plan improvements for the following month along with any shifts in priorities or budgets that can impact PPC campaigns
Quarterly and/or annual reports taking into account seasonality trends, news or economic event effects, and industry shifts while reflecting back on monthly optimizations and baseline objectives.
Customizing reports depending on business types is also key. For example, eCommerce and lead generation reports may share some marketing and/or advertising assets, but because overall goals and data are different, each requires its own approach.
eCommerce is cut and dry: The main goal in conversion tracking here is to ensure proper attribution across sites or digital marketing/advertising campaigns. Care should be taken to compare data from different sources — what Shopify is saying was sold versus what Google Analytics has tracked — to best understand what is being tracked correctly and what isn’t. Attribution is the goal here, using multiple methods to track such gives a thorough idea of what’s working well.
Lead generation is more subjective, as the focus can often lean more on the quality of leads. While linking leads to sources is certainly helpful for future campaigns, the health of any good lead gen campaign is often better determined by the close rates of leads obtained. Good companies will have at least a loose set of guidelines describing what makes a lead good and track all close rates down to a purchase.
While ROI tracking isn’t the sole indicator of a company’s marketing campaign, it’s a critical indicator for ad budgeting to show profitability and gauge results.