In the bad old days, digital marketing was a free-for-all where instant gurus touted their money-making formulas (usually a little better than snake oil salesmen) and deluded followers into spending thousands for coaching programs that didn’t work. Of course, without metrics for measuring the ROI of digital marketing, these gurus continued raking in the money from gullible and desperate businesses.
This isn’t a new problem and it’s unique to digital marketing. As far back as the late 1800’s John Wannamaker is quoted as saying:
Half the money I spend on advertising is wasted; the trouble is I don’t know which half.
Traditional advertising faces a similar problem with companies allocating 60% of their media budget to television when only 18% of TV advertising campaigns generate a positive ROI, according to Nielsen.
Now, of course, digital marketing is much more sophisticated and it’s harder for false gurus to seduce business owners without proving the ROI resulting from their digital marketing programs. Below are the results from studies showing the ROI of digital marketing:
ROI of digital marketing
- A study by Microsoft used big data to measure the ROI of digital marketing both with and without traditional advertising. They found digital marketing outperforms all forms of traditional advertising (TV, print, radio, and outdoor) while combining both resulted in the highest ROI. Thus, digital marketing isn’t an either/ or strategy, but businesses should blend traditional advertising and new media. Also, businesses whose media spend is still focused on traditional advertising should migrate their budgets in favor of digital marketing.
- A case study by Google and Dove showed a 6% lift in sales while combining traditional advertising (TV) with digital marketing resulted in an 11% increase in sales. Interestingly, the study showed the “tide lifts all boats”. In other words, advertising a single product through digital marketing caused an uplift in sales of other Dove products.
- Nielsen showed that CPG (Consumer Packaged Goods Companies) demonstrated the positive ROI of digital marketing was nearly 2.8%, with some industries showing an ROI of over 5% — not too shabby.
The state of ROI assessment
The state of ROI assessment is dismal, according to the Fournaise Marketing Group, which found:
Nine out of ten (90%) global marketers are not trained to calculate return on investment (ROI), and 80% struggle with being able to properly demonstrate to their management the business effectiveness of their spending, campaigns and activities, according to new research.[Tweet “90% of marketers can’t calculate the ROI of their digital marketing spend. #digitalmarketing”]
Why is ROI assessment so bad?
Fournaise CEO identified 2 problems in their study that account for the dismal state of measurement of ROI in digital marketing (or marketing in general, for that matter).
The first is the poor training of marketing majors in the assessment of marketing ROI and the second is the influx of non-marketing majors into the marketing discipline (over 1/2 of all marketing employees have non-marketing degrees, most often in the social sciences). He sums up the problem with this statement:
In other words, every Tom, Dick & Harry is a Marketer, lacking the scientific and financial knowledge necessary to inform and optimize the creative side of Marketing. CEOs have told us again and again: they want ROI Marketers, i.e. 360-degree performance machines trained to deliver (real) business results and prove/optimize ROI. As long as Marketers continue to fail to get trained in, master the use of and optimize Marketing Performance & Marketing ROI, they will struggle to demonstrate to CEOs that they are not ‘money spenders who jump on (and hide) behind the latest fads and blow smoke’, but real business generators
ROI of digital marketing and market performance tips
First, let’s take a look at digital marketing and where it fits within the spectrum of traditional marketing. Here’s a very cool infographic I created with the help of Matt Valvano from Ideas and Pixels — a first-rate graphic designer.
The infographic shows the various elements necessary to achieve a positive ROI of digital marketing campaigns. Basically, 2 things account for positive ROI:
- bringing more visitors to your store (or estore)
- convert more visitors who show up at your store or estore
Unfortunately, many attempts to measure the ROI of digital media focus on these end results, totally ignoring the variety of factors that generate positive outcomes — a very dangerous practice.
Tip #1: Think beyond outcome measures
So, my first power tip for measuring the ROI of digital marketing is understanding the complex set of activities and interrelationships among activities resulting in positive ROI. For instance, a focus on building a social media community backfires quickly if you have problems with customer satisfaction due to poor product performance — all you’ve done is give disgruntled customers a platform for complaining about your product or service.
Tip #2: Measure what matters, not what’s easy
Often you’ll find digital marketers measuring the easy things — likes, clicks. Sure, these things matter (somewhat), but they’re not the most important (or only) important aspects of a successful digital marketing campaign.
If you’re convinced customer satisfaction impacts market performance (as is the case for most businesses), assessing sentiment makes a lot of sense. But, don’t stop with sentiment analysis — look at the totality of KPIs and measure all of them. Better yet, chart performance across all KPIs over time, which is much more insightful than putting all your faith in point measures.
Tip #3: Metrics aren’t enough
Don’t simply create dashboards displaying your metrics. Statistics don’t speak for themselves and require interpretation by skilled analysts combining both the art and science of analytics to uncover actionable insights from your metrics.
While we’re on the topic of dashboards, think about issues related to the level of analysis appropriate for different users. For instance, the VP marketing needs a broad overview of metrics related to the entire product bundle, while brand managers need a more detailed view of just the products they handle.
A good dashboard allows users to dive deeper or take a broader overview of metrics. Also, adding the ability for users to create ad hoc reports and alternative visualizations increases the effectiveness of your dashboard.
Tip #4: Tie compensation to metrics
One of the biggest challenges firms face (once they get over the hurdle of generating meaningful metrics) is translating data into insights then applying those insights to actions. So, it’s a good idea to tie compensation to metrics — this ensures your employees pay close attention to metrics and try to optimize market performance by using insights provided through these metrics.
I have 3 caveats, however, when it comes to tying compensation to metrics:
- Balance the compensation to ensure it’s challenging to achieve higher levels of compensation without being too difficult to achieve. If you expect too high an ROI of digital marketing employees (something unrealistic) they won’t try. If the expectation is too low, they’ll leave money on the table by not doing everything possible to optimize your digital marketing campaigns. You also want to pay attention to the degree to which compensation fluctuates based on performance. There should be adequate incentives to optimize the ROI of digital marketing.
- Be very careful that you’re compensating employees for metrics that correlate highly with the ROI of digital marketing. Tying compensation with vanity metrics, like # of Facebook Fans, will drive behavior toward achieving a large Facebook fan-base. However, there’s strong evidence that the absolute size of your Facebook community matters little while the engagement of your community provides a stronger impact on the ROI of digital marketing. Pay for what matters.
- Employees must have control over factors impacting metrics. For instance, marketers might have little control over customer satisfaction if the production department turns out a really crappy product or logistics can’t get the product delivered in a timely manner. Employees quickly become dissatisfied with a compensation plan containing elements they don’t control.
Tip #5: Don’t stop with descriptive analytics
Move past descriptive analytics (how many, how much, how often) to employ predictive analytics.
In essence. predictive analytics build models using big data to uncover relationships among the factors that impact the ROI of digital marketing (or any other variable of interest).
As you see above, defining the ROI of digital marketing is a challenge.
How to assess the ROI of digital marketing
Marketing is constantly trying to PROVE the ROI of everything they do. Meeting the challenge is often difficult. A quick look at a scenario might help.
You finish a meeting to the C-suite where you show a beautiful trend line demonstrating a steady increase in sales volume and revenue. The CEO looks totally unimpressed. He asks, “How many of the sales are a result of the advertising?”
You answer, “Well, certainly our advertising is effective. Look how sales continue increasing over time.”
Unconvinced, he continues, “Well, we’ve spent over $ 1 million on that fancy new website you wanted. What’s the ROI of that investment?”
“We had over 2,554,635 visitor to that website last month. The average visitor stayed for 1:45 before exiting. On average, visitors read 1.4 pages. Our bounce rate dropped to 64.2%”, you tell her proudly. “Our Facebook page is really taking off. We had 145,452 new Fans added to the page last month,” you add.
“But, what was the ROI?” she repeats.
Does this sound like a conversation you’ve had within your firm?
Sometimes I think it’s not a situation of women are from Venus and men are from Mars, but one where marketing is in 1 solar system and the rest of the C-suite is in a totally different galaxy.
Wringing our hands over the lack of communication isn’t the answer. Instead, we need tools to help prove the ROI of digital marketing content.
Prove the ROI of digital marketing content
To an extent, the problem results because we don’t really KNOW what leads to a consumer reaction. In fact, after many studies of consumer behavior, I’m not sure consumers always know themselves. But, playing devil’s advocate for a moment, the CEO has to make tough decisions and projects that don’t produce sufficient returns must lose resources to those producing superior ROI.
So, how do you prove the ROI of digital marketing content? That depends a lot on what type of content you’re creating.
If you created a simple CTA (call to action) on your e-commerce website and/or social media, it’s fairly straightforward. You create a funnel with Google Analytics (or whatever tool you’re using) allowing you to visualize movement down the funnel — from visiting the website to buying the product. If you want a quick tutorial on how to set up conversion funnels, here’s a good one from KissMetrics. Now you can choose different segments so you can visualize how folks who come from Facebook are different from those coming through SEO.
But, what happens when your customers go to a retail store to consummate their purchase? Whoops! Now, all the powerful analytics tools lose their ability to track the ROI of digital marketing content.
Options to prove the ROI of digital marketing content
All is not lost. You still have some options in demonstrating the ROI of digital marketing content.
Before and after
Tracking sales before the digital content appeared with sales in the same area AFTER producing the digital content gives a good estimate of the ROI. Advertising agencies have done this for a long time, but it’s not perfect. For instance, too many other variables come into play between the before and after. Also, there might be a lag before the ad impacts sales. Digital marketing suffers the same problems.
A/B testing involves creating marketing tactics that differ in only 1 aspect from each other. For instance, you test 2 headlines in your ad by showing the alternate ads to different groups and tracking their response. Whichever headline works best you now push out to all new viewers. To test the impact of your digital content on retail sales, you might transmit digital content to only some geographical areas and track sales in both areas that saw the ad and those that didn’t. You now have a really good estimate of the ROI of that digital content. Facebook recently implemented new advertising tools allowing you to select specific market segments and only share digital content in defined segments.
Prove ROI in complex digital marketing situations
Does this scenario look familiar?
Sally sees TV advertising you’ve had running over the last couple of days. She remembers using your brand last week. It worked really well. She mentions this on her Facebook wall. Joan sees the mention, visits your website to learn more about you and get more information about your product. On her next trip to the store, she buys your brand.
All too often, this scenario represents the normal chain of events leading to sales. Linking these actions is a complex task well beyond the capacity of Google Analytics — even though Google Analytics lets you add external data into the system so you can track offline actions and online ones in an integrated fashion.
Let’s break this down into the individual metrics needed:
- message strategy
- media buys
- sponsored posts or other advertising
- fan engagement
- sentiment trends
- traffic sources
- funnel (conversions)
- entrance and exits — tells you if visitors entered from an ad or organically
Of course, this is the bare minimum of metrics you’ll need to evaluate this complex task. You’ll likely also need to include alternative explanations for your sales trends, such as cooperative advertising by the retailer, media mentions of your brand, retail effort (including product placement) …
Not so easy, is it? Where do you start?
What’s a Tweet worth?
People ask me all the time: What’s a social post worth?
Yeah, I know. Lots of folks disagree with me, but, as noted in the infographic below, the answer is — it depends.
Does that mean digital marketing doesn’t work?
The value of digital marketing
First, the value of a Tweet or Like or Pin depends on the size of your network — the larger the network, the greater the value of a social post. A network of 16,000 Twitter followers requires only 6 Tweets to return a value equal to the average US car payment– $ 450.
But the story doesn’t end there.
Size is only one element relevant to the value of digital marketing. Engagement is a much bigger reflection of value. A highly engaged network shares much of what you post across social networks. All those Likes, RT, Re-Pins, etc add up to the huge amplification of your message. Thus, a single Tweet, Post, Pin gets magnified to a much larger audience than the original network.
Owned versus earned media
In digital marketing, we refer to this as owned versus earned media. Owned media belongs to the brand and represents their Facebook pages, Twitter accounts, etc. Earned media represents the amplification you earn through motivating followers to share your posts.
Engagement comes from posting the “right” content — content your followers find valuable. Valuable content:
- Solves a problem
- Respects your followers
In addition, the right content is posted on a consistent basis when your target audience is likely online. Earned media is likely the most valuable media and much cheaper than paid media (online advertising).
Why is earned media so valuable?
Earned media has so much value because it has the appearance of objectivity. Think about it, we’ve all become so jaded by advertising we barely listen when brands tout their benefits. But, when friends tell us something, we believe them. A Tweet from a friend we believe.
When your followers share your content, they not only amplify your message, they de-commercialize it — make it more believable because it comes from friends rather than the brand. The value of earned media is so valuable, Facebook even uses it to support sponsored posts by showing you which friends like the brand.
So, it’s not just the size of your network, it’s how engaged they are.
Some brands pay influencers by offering money or free product (hence the offers made to influencers with high Klout scores). I personally think paying influencers is a bad practice as it calls their motivations for sharing content into question and, if used frequently, dilutes their value. I’d encourage brands to develop relationships with influencers rather than paying them.
But, putting the motivation issue aside, evaluating influencers needs more than just assessing the size of their network, and evaluating how well they do in terms of engagement.
If engagement is more valuable than the size of a social network, an important question is: How do you build engagement?
Again, the best trick to building engagement is producing valuable content on a consistent basis. Value comes in the eyes of your target market. Sometimes that’s creating content that solves a problem — like this. In other cases, content that’s interesting, unusual, funny, surprising, or emotionally charged drives engagement.
My advice to new clients is to try various types of content, then see what works best with your target audience by monitoring both reach and engagement for each post. Likely, some combination of entertaining and problem-solving content works best.
Be sure to avoid over-promotion. A recent guest post argued for the 80/20 principle where content is concerned — 80% valuable, 20% promotional. I actually try for something closer to 10% promotional content.
You need to engage with followers if you expect them to engage with you. Thank them when they share your content and when they say something nice about your brand.
Treat your network as a valuable part of your social network and get them to generate content.
Ask their opinions about your brand, hold contests to encourage them to generate content about your brand, provide tools to create a true community around your brand.
Employees are likely the best advocates for your brand. Not only can they act as evangelists, but they can also share unique perspectives about your brand that consumers find engaging. For instance, someone working to make the product might share a typical day at work, a buyer might talk about how he/ she builds relationships with suppliers, a salesperson might share about interactions with retailers.
Sharing insider knowledge makes consumers feel like they’re getting a backstage tour of your operation and makes them more engaged with your brand.