How do you measure Internet Marketing ROI?

Author Name
Answered by: Kerri, An Expert in the Internet Marketing Category
Online marketing is an incredibly data-heavy industry, and digital marketers often measure their success with an astounding array of key performance indicators, or KPIs. With so many data points surrounding traffic, clicks, opens, likes, shares and leads, it’s easy to create amazing PowerPoint presentations for the boss, but how do you really measure Internet marketing ROI?

Most marketing KPIs have no real effect on the bottom line.

Some of the data often cited to “prove” the ROI of internet marketing, such as social media followers or web traffic, are actually overblown vanity numbers. Traffic and followers can be bought by anybody with a budget. That doesn’t mean that they are creating sales or revenue.

Unless increased traffic is translating into more phone calls, leads, purchases or other forms of revenue, it’s likely not having an impact on your business. While it’s important to track all of your KPIs, there is one in particular that can tell you if your marketing is working: customer acquisition cost, or CAC.

Is Your Marketing Creating a Return on Your Investment? Calculate Your Customer Acquisition Cost.

The idea behind the customer acquisition cost is simple: Determine exactly how much it costs you to acquire one new customer. Your CAC is also easy to calculate. First, list all of the costs of your marketing and sales efforts for a certain time period (such as a month or quarter). You should include anything you’re spending on advertising, of course, but also include marketing materials like one-sheeters and even business cards. Consider money you’re spending on trade shows, conventions or industry associations. And, don’t forget the costs involved in recruiting, training and compensating your sales team.

When you have your total sales and marketing cost, divide it by the number of new customers your company acquired over the same period.

Here is a sample CAC calculation:

Sales: Recruiting/Training + Salaries + Commission + Bonuses = $100,000

Marketing: Salaries + Website Costs + Agency Costs + Ad Buys = $150,000

New customers acquired: 100

100,000 + 150,000 = $250,000 total costs

$250,000 / 100 = $2,500 per customer

So what does a CAC of $2,500 tell you? Well, in this example, the company would need to consider if they will earn more than $2,500 from each customer. If so, then they are getting ROI from their Internet marketing. If not, well, it’s time to look at each sales and marketing expenditure.

What Else Can You Learn from Your CAC?

Once you know your customer acquisition cost, you need to look at what an average customer spends with you over time. This is going to look a little different for everyone, depending on your industry and business model. If you’re a car dealer, your average customer might only have one transaction ever with you. On the flip side, if you’re a retail store or nail salon, some customers will return again and again. The important thing to know is whether your CAC is worth the return you’ll be getting from that customer in the long run.

Remember, don’t be fooled by vanity metrics.

If you’re interesting learning how to measure Internet marketing ROI, the most important metric to understand is your CAC. It answers the key question of whether your marketing and sales efforts are actually making you money.

Author Name Like My Writing? Hire Me to Write For You!

Related Questions