Getting a handle on the ROI of your online marketing is really pretty simple …and because it can be all-electronic, it involves a lot less guesswork or assumptions than measuring traditional marketing elements like direct mail or space advertising.
Let’s look at a fictional – but fairly typical – B2B example: Foobar Enterprise Software. Foobar’s flagship product has an average initial-order value of $150,000. As a young company in a (so far) not overly competitive space, they enjoy a 20% profit margin; so each sale nets them $30,000.
Pay Per Click
Foobar runs a PPC program using a fleet of keywords, which the search engines’ analytic reports tell them are running $200 average cost per click. Their own website logs tell them that one in five PPC-originated clicks will convert, which gives them a $1,000 cost per prospect. Downstream, their CRM tells Foobar that 1 in 10 such prospects actually buys, leading to a $10,000 PPC-marketing cost per sale. With a $30,000 return covering each $10,000 invested in PPC, clearly Foobar has little real room to carp about steep keyword bid levels. (And for new-name customers, many CFOs would use customer lifetime value as a proxy for “return”, vs. the profit on just the initial sale.)
Non-PPC search-engine traffic
On the “organic” side, for simplicity let’s attribute all of Foobar’s website costs to non-PPC search-engine activity. (Sure, that’s a bit artificial, since you can’t have PPC without having a website; but your CFO will be able to make a more defensible allocation for your own shop.) Foobar does a $20,000 website makeover about every other year; and they spend about $2,000 a year on hosting and SEO. Again going to their web logs, they know they get about 50 “organic” conversions a year; and their CRM tells them that only 1 in 20 of those prospects will actually buy. Doing the math…
their $12,000 annual investment in non-PPC e-marketing.
Sounds great… but note, that ROI would drop to near-zero by adding a webmaster to the cost side; so that pricey hire would have to be a miracle-worker in terms of either driving more search traffic or improving the conversion rate and/or quality.
While the gross ROI is certainly of some interest, the real payoff comes from driving the analysis down another level or so. Since their tracking tells them the actual keyword that each sale originally clicked, Foobar can determine their ROI per keyword! As a result, they were able to double their PPC ROI with the same spend, by dropping under-performing keywords and raising bids on the stars for better results-page placement.
Note the references above to a CRM (e.g., Salesforce.com): without one, it’s impossible to reliably track every sale back to its source click type; with one, it’s a piece of cake.s, or integrating the site with a CRM. If so, we strongly suggest engaging a professional Web marketing consultancy, like eMagine; it’s likely to be well worth it.