How to Measure Internet Marketing ROI: The Four Basic Questions

Tracking Internet Advertising Just as Important as Traditional Media

SEATTLE, WA — (MARKET WIRE) — 08/03/2005 — The Internet is a powerful advertising tool, but many companies shy away from investing in it because they don’t feel they can measure return on investment.

This is not true. The success of an online marketing campaign is easily measured, even formulaic, if you just follow four easy steps.

QUESTION 1: WHAT IS THE GOAL OF YOUR SITE, AND WHAT PAGES MARK THAT GOAL?

Your web site has some value-generating goal — something that helps grow your organization. These goals are usually in line with larger organizational goals, and may include:

  • Generate leads.
  • Generate interest in a product or service
  • Get donations
  • Inform/persuade the public
  • Get votes

There is a specific page on your web site that indicates you’ve achieved that goal; when a visitor views that page, your site has generated value. Here are a few examples:

  • A visitor views the ‘thank you’ page at the end of an online store
    checkout process.
  • A visitor views the ‘thank you’ page after someone completes an
    information request form.
  • A visitor views the ‘thank you’ page after someone subscribes to your
    email list.
  • A visitor views a specific page of your site.
  • A visitor watches a specific video on your web site.

Goals run the gamut from making money to less tangible stuff. You MUST determine that goal and the page that marks it.

QUESTION 2: WHAT’S THAT GOAL WORTH?

Now the hard part — what’s it worth to your organization each time you achieve that goal?

If you’re selling products online, it’s easy: Find out your profit per sale, on a sale-by-sale basis. If you have a sales force, it’s still pretty easy: Figure out how many Internet leads convert to customers, and the average value of those customers. Then multiply the two:

For example, if 25% of all Internet leads convert, and on average, each conversion is worth $1,000, the value of a lead is: 0.25 X $1,000 = $250

If your only online goal is to get people to see a specific page — say, an article about Internet ROI — it’s a little more difficult, but not impossible. If, for example, 1% of everyone who reads your article online becomes a client, and on average each client pays $1,000 per year, then the value is: .01 X $1,000 = $10/person reading article.

If you’ve got a newsletter, the same measurement applies: Track how often newsletter subscribers become customers:

10% of all subscribers become customers, and average customer is worth $1,000 Value of one signup is: 0.1 X $1,000 = $100

Even organizations that don’t sell stuff can measure effectiveness. Consider political organizations, where most of their work focuses on getting the word out, persuading the public, etc. For them, you can create a points system:

1 person reading a specific article = 5 points
1 person viewing a specific video = 5 points
1 person signing up for a newsletter = 10 points
1 person joining the organization = 100 points

This is pretty arbitrary, but it works as a comparative measure:

Campaign one got 30 people to watch a video:
30 X 5 = 150 points
Campaign two got 500 people to watch that video:
500 X 5 = 2500 points

We may not know, literally, the value of each campaign. But we know their relative effectiveness. The point here is you should always consider what your web site’s goal is worth. Accuracy is important, but consistency is crucial — as long as you can measure relative effectiveness, you can evaluate advertising effectiveness.

Regardless of your goals, make sure you understand their relative value.

QUESTION 3: HOW MANY TIMES DID YOU ACHIEVE THAT GOAL, AND WHY?

You know what your conversion goal is, from question 1. Now you need to know how often you achieve that goal. To do that, you need at least three out of the four basic metrics:

  1. Landings on a specific page or file. You can measure the number of times a specific page or file is viewed using any basic web site traffic analysis software.
  2. Where your site visitors come from. Again, any basic web site traffic analysis software can provide this.
  3. Conversions. Some ad networks, like Google Adwords, provide built-in conversion tracking, so you can tell which ads generate value and which don’t.
  4. Source of each conversion. Again, use software such as Urchin to measure conversions generated by every advertising asset: Ads, search engine keywords, email newsletters, and so on.

If you’re selling products online the conversion metrics look like this: Shopping cart ‘order confirmed’ page was viewed 400 times, so we had 400 orders. 30 of those orders came from Google Adwords Ad #3. Those 30 orders totaled $4,000, with a profit of $3,000. So Adwords Ad #3 generated $4,000 in income, with a net value of $3,000.

Or, if you’re looking at leads: The information request ‘thank you’ page was viewed 400 times, so we got 400 leads. 30 of those leads came from Google Adwords Ad #3. Those 30 leads have an average value of $250 each. So Adwords Ad #3 generated $7,500 in value.

If you’re working with a marketing consultant who knows this is a priority, and you don’t at least have three out of four metrics available, fire them and find someone else. No exceptions — how can a consultant help you deliver effective marketing if they don’t even know whether it’s effective?

Measure any three out of the four metrics, and you can determine return on investment.

QUESTION 4: WHAT DID IT COST TO ACHIEVE YOUR GOAL?

Now you bring it all together. What did you spend to achieve your goal? If you’re collecting all three conversion metrics, you’re set:

Look at the value of each individual conversion in light of the cost of the advertising asset that generated that conversion:

Sale 1 generated $1,000. It came from Adwords Ad #3. I spent $50 on clicks from that ad before I got this sale. So I spent $50 to get $1,000 in business.

Then average it out: Sales from Adwords Ad #3 were worth $12,000. I spent $1,000 on that ad. Assuming I’m running a profitable distribution channel, I did pretty well.

If you only know landings, referrers and conversions, you can still figure out general performance:

This month I received 400 visits from Adwords Ad #3. Those visits cost me $50; I didn’t get those last month. This month I generated an additional $2,000 in sales. Those additional sales came from the products promoted in Adwords Ad #3. I didn’t do anything else. Chances are, Adwords Ad #3 generated most of those sales.

This isn’t perfect, but you can at least determine which Internet advertising assets are not providing value: This month I received 400 visits from Adwords Ad #3. Those visits cost me $50. I didn’t generate any additional sales this month. Adwords Ad #3 isn’t working.

It’s better to know for sure, on a conversion-by-conversion basis, what’s generating value. But even if you don’t know that much, you can at least do a gut check and know which ads are ineffective. Armed with that knowledge, you can make changes and see whether those changes improve results.

ONE LAST QUESTION: WHY SHOULD I DO THIS?

There are many, many payoffs for basic ROI measurement.

First and foremost: You can measure which ads and campaigns generate value, and which don’t. The other benefits are almost as important, though. By gathering this kind of data over time, you can measure more than the effectiveness of individual assets — you can measure the effectiveness of whole marketing campaigns, and of different messages.

That kind of business intelligence is invaluable, and means that measured Internet advertising delivers value far beyond individual sales.

Answer the four questions and you’ll help your organization in the short term, with more effective Internet marketing. You’ll also help in the long term, with strategic data you can use to refine all of your marketing efforts.