Will this Campaign Work? How to Calculate ROI for Digital Advertising
Promoting a new product or brand can be gut wrenching. So much work has gone into planning and now it's time to start advertising. Will the advertising work? How will you know?
It’s one thing to calculate ROI for an e-commerce campaign because returns are immediate and measurable. But what about calculating ROI for general digital advertising campaigns? It’s harder, but not impossible.
Picture a funnel with brand awareness at the top and a sale at the bottom. Now picture the steps that must occur between initial awareness about your business and the sale. Some of these steps are related to marketing communications and some are related to sales activities.
For example, if you are marketing a college, one of the steps between awareness and a sale (or enrollment, in this case), might be an open house. In a similar vein, if your business is car sales, an interim step might be a test drive. So it's these interim steps in the funnel are the activities that should be marketed, and when they are, measurement can be precise and ROI can be calculated. The point is to break down the decision making process into measurable steps.
Let’s use the example of a college marketing an open house and look at return on investment in detail.
Media Math for Digital Advertising Campaigns
We know the average costs for digital display advertising. They cost $2.80 per thousand impressions and have an average click through rate of .35% *. That means that buying 100,000 advertising impressions will cost $280 and it will result in 350 clicks to your new “college open house” landing page.
Now you need to calculate your landing page conversion rate- the rate at which people who go there RSVP “yes” to attend your open house. You might know these numbers from past events or you might need to just run the campaign for a little while to learn this conversion rate. Lastly, you will need to assign some value to a conversion- how much is it worth to you to get someone to attend your event?
So, here’s the return-on-investment calculation using conversion rates and conversion values that I’ve projected for the purpose of illustration:
Media campaign cost: $280
Website visitors: 350
Conversion rate: 3%
Number of conversions: 11
Conversion value: $50
Total sales: $550
So this scenario delivers a strong return on investment.
This funnel concept works for almost any type of business. And approximate media costs and conversion rates are knowable for most digital media. Calculating the value of the conversion is sometimes the most challenging part. But there’s value in just setting up this formula to see what potential value a campaign might deliver. For example, in the campaign described above, the lowest conversion value for which there’s any possible payback is $25.
So, ask yourself, is getting someone to this event worth at least $25? If so, run the campaign.