Why calculating ROI too quickly is bad for digital marketers

by | Feb 20, 2020 | Analysis, Public Relations

The contribution that marketing and public relations make to a business is often overlooked.

It might not feel like that, though. Marketers are under increasing pressure to justify their time and investment in terms of the “real value” these generate, and sometimes it can feel like we spend more time calculating the “impact” of our work than doing the work itself.

The impact of digital marketing is definitely not under measured. The problem is that it is measured incorrectly. As we’ve previously pointed out, there is a huge difference between ROI perception and reality, especially when it comes to measuring ROI in social media promotions.

The truth is that many of the key metrics for calculating ROI simply do not work when applied to digital marketing. Or, at least, they need to be measured over the course of the business cycle rather than in weekly snapshots. In this article, we’ll explain why measuring ROI too early is bad—and essentially impossible—for digital marketing, and then suggest some solutions.

The problem with ROI in digital marketing

The most recent research into the relationship between ROI and digital marketing was conducted by LinkedIn at the end of last year. It revealed a strange and confusing picture.

Seventy percent of global digital marketers say that they are measuring the ROI of their activities. Yet at the same time, many are struggling to calculate their true impact, communicate this to key stakeholders, or use it to make a case for their work inside their organizations.

Why calculating ROI too quickly is bad for digital marketers

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In short, digital marketers are being asked to measure their activities, but not in a meaningful way.

There are two reasons for this. The first is institutional. Executives have long become used to measuring marketing in terms of ROI, and lack the technical expertise to fairly assess the way that digital campaigning actually works. Engaging with influencers on social media is an incredibly important part of digital marketing, as 89 percent of marketers say that ROI from influencer marketing is higher over other marketing channels. Yet measuring the impact of this is difficult.

Nevertheless, digital marketers are expected to show an ROI for their activities. In this situation, many turn to the most easily available statistics they have available. Every professional website builder will provide data on visitor numbers, and website analysis packages provide instant access to metrics such as page views and visitor clicks. Lacking more sophisticated measures of the impact of their content, digital marketers have taken these metrics and called them “ROI”.

Measuring too soon

There are several problems with measuring ROI in terms of the clicks, sales, or visitor numbers instantly generated by a campaign.

The first is that measuring the month-on-month impact of digital marketing is far too short a timeframe to assess the true impact of a digital campaign. The same LinkedIn research mentioned above found that 77 percent of digital marketers are measuring return within the first month of their campaign.

Yet within that group, over 52 percent of digital marketers knowingly had a sales cycle that was three months or more. Only 4 percent of digital marketers were actually measuring the impact of their campaigns over a period that was as long as their sales cycle.

Secondly, basic measures like “visitor numbers” or “click-through rate” don’t tell business leaders anything about the actual impact of a campaign. Digital campaigns are typically slow-burning projects, starting with customer engagement and only months later generating sales. Without this holistic view of the impact of digital marketing, it becomes impossible to make basic business decisions like deciding on the budget for digital marketing or making markup calculations for new product lines.

This is not to say that measuring visitor numbers or click-through rates is not useful. It is. It’s just that these are better seen as KPIs, and not a measure of ROI.

KPI vs. ROI

The difference between Key Performance Indicators (KPIs) and Return on Investment (ROI) is still poorly understood by many marketers. The best way of thinking about the difference is precisely in terms of timescales.

KPIs such as the cost-per-click or cost-per-lead are extremely useful for measuring the short-term success of a digital campaign, but they don’t really say anything about the ROI of it.

At the same time, online businesses that actually calculate their ROI correctly have a 72 percent chance of having an effective marketing strategy. This is why KPIs should feed into a measurement of ROI, and not be treated as a replacement.

KPIs are a great way of measuring the success of a particular email marketing campaign or a social media outreach process. In order to assess the ROI of these campaigns, though, these KPIs need to be put into their proper context.

Providing that context means that marketers need to go back to the basics. Here is the basic equation for ROI:

Why calculating ROI too quickly is bad for digital marketers

As you can see, there is no mention of website metrics or engagement stats in this equation. Instead, both “investment” and “return” need to be seen in a holistic way that includes ALL of the investment in a campaign, from staff salaries to the cost of data breaches.

Similarly, “return” is just that: the extra profit generated by a campaign. Not it’s impact on visitor numbers, and not the number of people who retweeted an image.

Measure twice, cut once

How you calculate meaningful and measurable ROI will depend, of course, on your industry. But ultimately your ROI should be calculated in terms of the actual income streams of your organization, and not proxy measures of your website’s success.

In the cut-and-thrust world of digital marketing, your marketing executive might not want to hear that. They might want numbers fast. But taking the time to explain the way that digital marketing actually works is time well spent for both of you. At least you will end up with a measure of your actual value, and not just some arbitrary numbers.

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Dan Fries

Dan Fries is Founding Partner at Lakeview Capital in Hong Kong.

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