“What will my return on investment be?”
In an ideal world, it would be the first question to any business who is looking to seek your favour and potentially gain you as a client. Unfortunately, it is not quite as easy as that. Every business person appreciates that there are an overwhelming number of factors involved in measuring ROI. However I don’t think I have ever known an MD not to consider this to be the ultimate parameter, when contemplating working with a new company/agency.
Take into consideration as well, that a solid ROI from an endeavour should be returning at around 10% (which is the historic rate of return of the stock market). It becomes more evident to see that when it comes to SMEs in particular, making sure the parameters are as accurate as possible is key. Otherwise a potentially profitable endeavour, could be ignored, because the correct calculations weren’t used to assess the opportunity in the first place.
Those figures are never going to be perfect, because we are effectively trying to predict the future, which I can assure you, is never easy (unless you’re predicting England’s hopes at a major Football tournament). I think this quote from Twitter about calculating ROI from Social really sums it up:
So in a vague and roundabout way, quality breeds ROI, but in this age of digital marketing, we are much better equipped to understand which new business methods cause increased revenues. More and more these days, even the least tech savvy of business owners, will have an idea of their user statistics (how they’re being found, conversion rates, typical spend).
The work that Inbound does, relies on an ROI for our clients. We don’t work with contracts, so if we aren’t giving a client a boost in their business which is increasing the number of inquiries they receive, then they will ultimately cease to work with us. In the same vain, ROI is important to our business model, still from a client perspective, because if we are not accurately reporting to our clients the reasons why they are receiving an increased bottom line, then the source of said increase could be easily lost.
“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” – 19th century department store mogul, John Wanamaker
You see, giving yourself a tangible figure for measuring your ROI, once the total period of the investment has completed, is mathematically straightforward:
Measuring ROI before the relationship has even taken place, is much more taxing. But it has been key for us to help emphasise to clients the importance of what we do and what we will aiming for, as part of their investment in us.
For example, just yesterday I spoke to a new client and from the information she gave to me about her sites current rate of performance, I was able to calculate a rudimentary ROI figure. Firstly, she told me:
She currently receives 15 new visitors to a certain page, per day
45% of those visitors will complete his enquiry form and be sent an application pack (good conversion rate)
50% of those enquiries will complete said application pack and return it
90% of those returns will be eligible for his business and convert
So to 1 decimal place, she currently receives 3 new accounts a day.
The non-branded search term that she ranks for which is bringing in that traffic (predominantly), is in a relatively uncompetitive market, but she is currently only ranking 5th for that term. Well I know from this lovely article, that because my client works in the corporate information sector, the click through rankings and percentages are roughly in this remit:
1st Position – 53%
2nd Position – 12%
3rd Position – 8%
All other results – 27%
Now unfortunately, not all the other results are accurately ranked, but I think we can safely assume that ‘All other results’ comprises the rankings from 4 – 10, is that 27%. 99.9% of clicks are made on the first page, so effectively this is true;
4th – 7%
5th – 6%
6th – 4%
7th – 3%
8th – 3%
9th – 2%
10th – 1%
So as my client is currently ranking 5th for her non-branded search term, I know that she is getting 6% of the traffic (because he is in the Corporate Information sector) for that particular search term.
Once I have all this information at my disposal, I am in a much better position to go back to her with 2 key pieces of information:
These statistics – To say that if you increase your ranking for this search term in the search engines, from 5th to 2nd, for example, you will be generating 100% more business.
Site Audit – To go back with actionable areas of change, relating to the SEO work we do on a day to day basis, to show how the change can be implemented for that particular search phrase (building strong links, improving content, making technical changes etc.)
Then the client is instantly, so much happier with what they are seeing. You are providing a tangible ROI figure and if you can do this on a regular basis when meeting new prospects, you’ll increase your conversion rate too.
There are a number of other areas that be assessed from this information too (for example, if you are generating more accounts then you are evidently getting more referrals) but I think we can save these for another time.
Calculating ROI should always be the first equation for any potential investment. Whilst it isn’t always easy to do, use the information at your disposal to try to come up with the most accurate figure you can. If you know that an element of what you are trying to calculate is between 35% – 55% for example, then just take the median of that figure to give you something you can actually use (45%).
The ability to assess numbers and actual statistics has been a key USP for digital marketing since it’s inauguration. As more and more platforms are becoming prevalent in the digital space, we will continue to see ROI calculated in a more informative manner. So take out your calculators and dust off your abacus’s (abacii…?) to ensure you are staying one step ahead.
ROI has been mentioned 14 times during the course of this article… : )