Online marketing has so many different aspects and it would be rather uneconomical to just run various campaigns without trying to establish the return on investment that they bring. This is what makes ROI optimization an essential part of online marketing. This in itself will sum up the key areas that most marketers focus on are search marketing, namely traffic and the conversion rate. The traffic is simply measured by the volumes of visitors that will come to your website through the influence of a particular marketing channel. As for the conversion, it is measured through the rate at which people take the defined action like purchasing, downloading, signing- up, viewing videos and so much more.
For almost all retail stores, the average conversion rate is about 2 to 3%. This translates to only 2 or 3 conversions for every 100 people that come to your site. As a result, about 98 people will leave your website without taking the defined action and thus not converted. There are so many ways of generating traffic to a website and most marketers often make the wrong assumptions. A common mistake on the part of advertisers is the assumption that if a particular budget, like of $100, brought in 3 leads, then doubling the amount would automatically double the number of leads. In this article we will help you learn to calculate your ROI.
Initial Advertising Effort
We will take the assumption that our traffic comes in from advertising through PPC. If the marketer used a budget of $100 for advertising in a particular week and paid $1 for every click of 100 people, of which only 2 were converted, the cost per lead would be $50. The formula for calculating this would be as follows:
Cost per lead = traffic cost/number of converted leads, this therefore means,
Cost per lead = $100/2
Cost per lead = $50.
The only way that ROI optimization would make sense is when a marketer fully understands how this works. For instance, if the marketer was to increase his budget to $200 and gets 4 leads from a possible 200 visitors, the leads would increase but the cost per lead would still be $50. This will be based on the same formula as above and shall be calculated as follows:
Cost per lead = $200/4 which is equal to $50.
Instead of increasing the budget on the PPC ads, the market may add some more money for purposes of conversion optimization. This means that you will be targeting the traffic that has been driven to your website and try to convince them more. A good example would be using the same $100 for PPC ads and an additional $20 for conversion optimization. This has a chance of increasing the number of leads, and as such it will reduce the cost per lead. If the leads increase from 2 to 3 then the cost per lead would be $40 computed as follows:
Cost per lead = (cost of traffic + cost conversion optimization) / number of conversions
Cost per lead = ($100 + $20) /3
Cost per lead = $120/3 which is equal to $40.
This therefore means that when you explore different ROI optimization strategies, you might end up significantly reducing the overall cost per lead and get more conversions.