Determining your core ROI goals means you’ll be able to measure data that tells the story of how your target audience interacted with your ads.
Here are a few of the key metrics to track that will help you measure success and determine ROI:
How much does it cost you to acquire a new lead on any given channel?
Knowing the cost to acquire a client for your business is the basis of your marketing budget, so it’s crucial data to add to your ROI analysis. Combined with other ad data, this will determine whether your business will make a profit.
Ideally, you’ll want to get a sense for which mix of ad channels (Search, Facebook, Display) work best for your business. Then you’ll be able to better optimise your ad budget going forward.
Here’s the formula for CPA:
However, we still don’t know the actual value of your client’s customers. The next thing we’ll discuss is LTV, which is essential for further ROI analysis.
Why? Because this will give you a number that represents an approximation of the revenue a new customer brings in, with all associated costs factored in.
If you know your LTV, you’ll be able to compare it directly to the cost of acquiring a new client through your digital ad campaign.
Here’s the formula you can use to determine your LTV.
Now that we understand how to calculate and analyze the lifetime value of your customers, we’ll be able to track the revenue generated by your digital advertising campaign. As you can see below, you just need to multiply your campaign’s conversions by LTV and closing ratio (50% would be .5).
Why include closing ratio? Obviously, every new lead you generate isn’t going to become a customer, so you’ll need to factor in how often you are able to close new leads to estimate campaign revenue correctly.
ROAS is an illuminating metric to use for ad campaigns, and a lot of marketers use it interchangeably with ROI itself. However, there are significant differences between the two.
What is the difference between ROI and ROAS?
Tim Mayer, CMO of Trueffect explains:
Want to skip all this confusing jargon and let the experts handle your digital advertising? Contact us today!