What are the return on investment (ROI) and key performance indicators (KPIs)? Understanding what they are and their impact on a business is crucial to achieving goals and success. Read along to know how they contribute to digital marketing.
About ROI and KPI
ROI and KPI are both measuring tools for a business. However, one measure is based on profits and the other on performance.
Understanding Return on Investment
The second thing to know is that ROI looks at returns on investment. It measures how much money you put into something versus how much you get from it as profits.
It is calculated as the gain in revenue minus the investment cost divided by the cost. ROI gets calculated for a specific period. For example, if you spend $100 on a new ad campaign and make $1000 from this campaign in return—the ROI would be 100%. It means that for every dollar spent on advertising campaigns (in this example), there is a $1 return—which is very good!
If you invest 100 dollars in Facebook ads and receive $110 back within two months, your return on investment would be 10%.
Advantages
- A more accurate measure of profitability
- Reduce potential conflicts of interest and achieve goal congruence.
- Performing a comparative analysis
- Performance by segment or division
Understanding Key Performance Indicators
Understanding KPIs is a crucial concept of digital marketing. A Key Performance Indicator (KPI) is a metric that measures the performance of your business. For example, profit, revenue, number of leads, etc.
For example, if you are running an e-commerce store, you can track the number of people who visit your website and how much they spend on average during their shopping session. You can use this data to understand how well your online marketing efforts are working and whether they need improvement.
It would help if you defined other KPIs like average order value (AOV), average basket size, conversion rate, etc. Still, these KPIs must all be specific and measurable so that you can see what’s going on with them over time rather than just collecting data without context.
Advantages
- Increase employee morale and engagement
- Performance should be measured
- Assist in decision-making
- Assist in goal-setting and planning
ROI and KPI in Digital Marketing
Both ROI and KPI are measures of success. They help you understand whether or not a campaign is working and allow you to compare campaigns to see what’s working best. The difference between the two lies in how specific or general they are.
A KPI is like time on site or pages per session. It gives you a particular performance measure that you need to understand why those numbers went up or down. The downside is that it can sometimes take time to pinpoint precisely why an increase or decrease happened, which makes it harder for us marketers to adapt our strategies accordingly. On the other hand, ROI metrics give us a more holistic look at how successful the campaigns are from start to finish.
From acquisition through retention and repeat visits through conversion and lifetime value (LTV). These metrics cover so much ground over such long periods and require large amounts of data. Hence, they may only sometimes be as accurate as KPIs at pinpointing changes within individual campaigns over time. Follow this link for more insight on How to Determine the ROI of Account-Based Marketing.
Both Are Crucial
ROI and KPI metrics are helpful tools for digital marketers to use when measuring their success. Let us help you understand what is working, where improvements need to be made, and how to get more customers for your business.