How to track ROI and KPI’s to prove the effectiveness of your digital ventures
One of the ever-elusive issues of any digital business venture is proving ROI. With multiple and varying touchpoints, it can become difficult to track where conversions are made in order to attribute successes to a specific initiative.
In this post we’re aiming to break-down exactly how to track ROI in your digital venture, making this as clear as possible. Whilst many things in business can require a hefty financial investment, fortunately many of the tools used in standard ROI tracking practice are freely available.
What is ROI?
ROI, short for Return on Investment, is a calculation which allows you to see whether an investment you made was profitable. This metric is as important as it is useful;
- You can see whether an investment was actually profitable or not (sometimes your revenue may look good but your costs are so high that it can cancel this out).
- You can compare your business investment efforts to see what you should be doing more of in the future.
- It helps to prove the effectiveness of an investment to stakeholders or your wider team.
% ROI Formula: (net profit / total costs) x 100.
Whilst this may seem relatively simple on the face of it, it can actually be quite difficult to accurately track the correct metrics to feed into this equation.
ROI is a long-term measurement
It’s important to stipulate early-on that whilst your investors and board members might be completely preoccupied with ROI, it’s actually advisable to restrain yourself from tracking this too early (more details on why below).
Rather than expecting to track ROI within the first few weeks, months or in some projects years of the project’s launch, ROI needs to be seen as a much longer-term measurement.
So what metrics do you appease your stakeholders with, in the meantime? This is where KPIs come in. The KPIs you set should be the smaller more incremental indicators to future positive ROI performance. These should be the metrics you take to your stakeholders, learn from and use to improve your product as you go.
KPIs = Short term
ROI = Long term
ROI vs. KPI
There are two common errors in KPI/ROI tracking:
1. Tracking the wrong kind of metrics
It is incredibly common to see metrics in the likes of clicks, sign-ups, website traffic etc treated as though they are KPIs – they are not. They can be useful metrics, but they aren’t appropriate to be reporting at board level.
Keep in mind that your KPIs should offer a clear indication of projected future ROI performance. The issue with examining clicks, sign-ups and website traffic is that these metrics don’t tell us anything about future ROI.
What you should examine instead: Cost per sale, cost per lead, cost per click, conversion rate, average customer value, customer lifetime value etc. As you can see these metrics are all directly related to revenue or costs. These are the only metrics which truly offer a projection of future ROI.
Of course when looking to improve the above metrics you are likely to want to examine the secondary metrics as well, but they shouldn’t be treated as KPIs and certainly not ROI.
Let’s take a common example:
An ecommerce company is struggling to get revenue through their new website. The main KPI they’ve decided to track is website traffic, stemming from the belief that more website traffic will equal more sales. To stimulate higher traffic they employ an advertising campaign. They comfortably hit their KPI target, but their sales have not come close to matching the traffic improvement.
The metric they should be tracking is Conversion Rates. This metric would tell them how many out of their website users are actually converting to customers. If the ratio is poor, then it could be an issue with their landing page, improper qualification of their leads or there may be an issue with the market fit of the product. Each of these possibilities would need to be tackled separately and would have multiple metrics pertaining to understanding and improving them, however the metric you would primarily report, learn and lead from is the Conversion Rates.
2. Tracking ROI far too early.
This one is simple but far more common than many of us would care to admit. It’s actually not possible to get a sense of ROI until your product or investment has been through at least one sales cycle, the length of which will be dependent on your business. It’s important to acknowledge this during the planning process, otherwise poor results in the early weeks or months can result in loss of faith in the project. This results in mis-lead decision making and in the worst-case scenario, the scrapping of a project needlessly.
This can lead whoever is reporting to fall into point 1’s trap, whereby they attempt to piece together the perceived failure of their project by reporting on ANY metric which looks positive (known as Vanity Metrics). This is a quick way of getting absolutely nowhere and has the dangerous impact of leading decision-makers to make badly informed choices and reducing transparency across the board.
Early education and communication is key to avoiding this issue. Let your team know what the metrics are, why they have been set and crucially when you expect to reach certain targets.
ROI measurement is often an ongoing process, with some products not proving ROI until years down the line. This doesn’t make them less worthwhile or necessary but feasibility should be taken into consideration in the planning process.
All of this is especially important to consider for your fundraising plans, when pleasing prospective investors will be pivotal to your businesses future success.
Metrics to track:
Because ROI needs to be attributed to revenue, profit or other actions related to your business goals, you can measure using two metrics; either the cost it takes to do something, or the outcomes generated. Some of these metrics are also useful for what they can tell you about improving ROI. The most useful metrics are:
Cost per lead – this is the amount it costs you to acquire each new lead.
Cost per acquisition – how much it costs to get a sale. This tells you how much you’ll need to make from each sale to meet your ROI goals.
Lead conversion rate – how many of your leads become customers. You can work backwards from your ROI goal in order to work out how many leads you’ll require in order to meet your goal. Low lead conversion rate can also indicate low lead quality and suggest a need for narrower targeting.
Customer lifetime value: this is the amount a customer is worth over the total period of time they’re a customer. It’s much cheaper to keep new customers than to generate new ones. You can also mistakenly think you have a negative ROI on a customer if you only take into account their purchases within 6 months, whereas the outlook can be much more positive when you take into account their purchases over a much longer period of time.
Average order value – This can provide valuable data when tracking ROI. This can be very useful to examine ways to increase average order value, as doing this can significantly increase the ROI.
Click-through Rate – This is the number of clicks you get from your ad or other promotional efforts. Whilst this is more of a KPI than a ROI statistic, it is useful to examine in order to improve targeting or make other tweaks which can consequently improve ROI.
How to track ROI
Now that you know what you should be tracking, it’s time to delve into how you should track. Fortunately many of the standard tools are free to use and easy to access. Depending on your business and service offering, utilising the applicable tools below will offer you all the data you need to learn and grow from your digital efforts.
If you don’t already have Google Analytics set up on your website, this will be your first port of call. It’s quick and easy to get set up.
If you’re planning to undertake Google PPC campaigns we’d also recommend linking your Google Ads with your Analytics. Here’s how.
Google Search Console
Google Search Console is another free service provided by Google which allows you to see the way your website is indexed on Google’s rankings. Its reports can help you improve your rankings by improving SEO, website crawling tools and performance optimisation insights. Whilst these metrics aren’t directly related to ROI, they can be very useful for measuring your product’s ongoing performance. .
Conversions are a completed meaningful action taken on or offline which is important to the success of your business. These are likely to take the form of a lead such as an enquiry, or phone call or as a sale. Notice the emphasis on meaningful here, just as you don’t want to track the wrong metrics with ROI, it’s also important to only set up conversion tracking for actions which have an important end result for your business. Often this will be because it will lead to a sale, but again you may have other business goals in mind.
Because they’re the main way of tracking who and how people become customers, Conversions should be your top priority when tracking through Google Analytics. On the GA interface, you can view and make changes to your conversion tracking under the “Conversions” section, under which there are three menus;
- multi-channel funnels.
First and foremost it’s important to say, if you’re an ecommerce site, getting the Ecommerce tracking set up should be your top priority. The information provided by this is a gold mine and will no doubt be invaluable to your business.
There is just one exception to this rule; if you have a single product website, where the product has no variations, SKUs or price-points etc. in which case ecommerce tracking won’t be necessary. Instead, set up regular goal tracking with custom product value goals as described below. More on ecommerce later.
Google Analytics > Conversions > Goals
Creating custom Goals.
Goals are designed to help you track specific lead, sale or conversion actions. These are essential to measuring the return you’re gaining from your website.
Whilst the interface may look somewhat confusing to begin with, it’s actually quite simple to set up goals once you know how.
What should your goals be?
This will depend entirely on what your business goals are. For a sales company, it might be most applicable to set up goals surrounding lead generation. If you were a blogger attempting to grow however, you might be looking for email sign-ups.
Your goals are set up using the completion page for the desired outcome. For website enquiries for example, you would only want the conversion goal tracked if the user fully completed the enquiry, so your trigger page in this case would be the “thank you for your enquiry” page.
If your trigger page or action is outside of your website, check to see whether the platform or software you’re using offers Google Analytics integration. If you’re serious about conversion tracking (and you probably should be) this should be one of the qualifying criteria you look for when choosing software and platforms.
Adding monetary value to goals
This is the option for anyone whose site isn’t an ecommerce site (if you’re ecomm, you’ll be looking at the specific E-comm tracking options). If you have a rough idea of the monetary value of your goal, it’s a good idea to include this.
How do I know what value to add to a goal?
Total revenue from tactic ÷ Total leads/sign-ups/users = Goal value
You gained 150 leads through a website form, for which you’d set up conversion tracking.
Out of these leads, you gained £10,000 worth of revenue.
10,000/150 = £66.67
This gives you an average idea of lead value and can provide a valuable metric to your tracking.
We’d advise you don’t include leads or financials that came from third parties, social media, affiliation etc in this, as the data can sometimes be wildly different and inaccurate.
Similarly if you have different methods of lead generation on the site such as a contact form vs a newsletter sign up, calculate these separately from one another.
If you don’t yet have enough customer data to work these values out, you’re best off focusing your efforts on getting enough customers in the first place, rather than crediting a value to your goals.
Google Analytics > Conversions > Ecommerce
This is a dedicated area created for ecommerce sites to track goals, conversions and behaviour. You will be able to see along the left hand side that there are multiple predefined goals and triggers including shopping and checkout behaviour and product and sales performance.
More on ecommerce tracking here
Accurately tracking touchpoints using Multi-channel funnels and Attribution
Customers typically visit a site multiple times before converting. Multi-Channel Funnels and Attribution reporting are two Google Analytics features which allow you to see the conversion pathway taken by users before they convert. With Attribution reporting you’re also able to pre-credit certain actions with a percentage of the final revenue from the action. This is the most advanced level of conversion tracking available through Google Analytics. It can help you to understand the roles of first, last and intermediary interactions and how they contribute to the sales funnel.
For a while now, Multi-channel funnel reporting was the go-to for attributing credit for conversions to multiple touchpoints. Google Analytics now also offers a feature called Attribution (Beta). The two offer similar things but with some differences;
- whilst Multi-channel funnels is only available to Google Analytics 360 customers, Attribution is available to everyone.
- Multi-Channel Funnels offer 8 data attribution models whereas Attribution reporting only offers 6.
- You are able to attribute costs to each goal in Attribution reporting, but not in Multi-channel funnels. This includes data from direct visits, and data from Google Ads campaigns.
These are just a handful of the main ones, but there are many other nuances. The main qualifying factor for most people will be whether or not you have a Google Analytics 360 account or not. If you’re lucky enough to have one, then have a play around with both options to see which is better suited to your business.
These tools provide a whole range of data and information which may be useful to your wider business efforts. The cost data provided by Attribution reporting can also be particularly useful to your ROI tracking initiatives because it demonstrates which area contributes to which sale.
We’ve added this one in because it’s probably one of the most common conversion methods and isn’t always obvious how it should be tracked. Fortunately your calls can be tracked through Google Analytics if you have the correct software in place.
Google is able to create dynamic phone numbers on your website which enable you to see which keywords, ads, and campaigns lead to a conversion. Google has a full guide on this here.
If calls play a big role in your conversions or you require data beyond tracked ad conversions, you may want to consider investing in a dedicated call tracking CRM software.
UTM Parameter tracking
This is an essential for source traffic tracking. This enables you to track links you’ve placed externally such as on social media, email campaigns or on third party websites. You can add details of which campaign it was from, the medium and name of the campaign. This data will then show up in GA and you can track its success.
Simply build out your tracking URLs using Google’s tool here.
Google Data Studio
Once all your tracking information is set up, you might find that there are quite a few interfaces to keep an eye on. This is where Google Data Studio comes in. It’s a powerful and flexible tool which allows you to display only the data you really need to see and can also be programmed to display 3rd party data if you choose. This is absolutely invaluable for its ability to streamline your reporting process, as it offers an accessible and readily available interface for reporting to teams and stakeholders alike.
We hope that this has offered a good insight into how to track ROI in your business and the incredible power of Google Analytics. Don’t forget to check out our blog on Seedrs’ website for a more in-depth look at KPI-setting.