What is ROI for ?

By Laure Gabrielle Chatenet and Ousama Jaâfour

ROI (Return on Investment: ROI) measures the profitability of a digital project, whether completed, in progress, or scheduled in the future, over a specified period of time (usually one year).

This KPI is very useful to evaluate the return on different investments and identify the most profitable project. This includes lead generation campaigns, conversion campaigns, email marketing, etc. This ratio is a significant decision-making tool to guide the company in its marketing strategy choices.

What is ROI?

ROI is used to calculate the benefits generated in relation to the amount of money committed to the digital investment. This ratio is used to evaluate the reach of a marketing campaign and whether it aligns with the set objectives.

This metric is presented as a universal metric that is easy to interpret by all members of the digital project stakeholder team. They use it to justify the expenses they have incurred (or want to incur) on this investment.

How do you measure ROI?

ROI is calculated using two elements: benefits/losses and the cost of investment:

ROI (in %) = (investment gain or loss - investment cost) / investment cost

This is the simplest formula to calculate. It is adaptable to all industries. ROI must be positive to prove the profitability of the digital investment. However, there is no universal formula to calculate this ratio.

It is pertinent to point out that a too high ROI is not always a positive sign, on the contrary, it can become an indicator of risk. In this case, the company must be aware of the danger that the applied marketing strategy may cause and take the necessary measures to circumvent it.

The metrics used to calculate the ROI of a digital project can be classified into 2 types:

quantitative metrics, which represent easily measurable numbers, such as: number of visits, traffic volume, click-through rate (CTR: Click-Through Rate), etc.
Qualitative measures that analyze non-quantifiable aspects, such as behaviors or feelings. These data are collected from surveys, customer reviews, comments on social networks, etc.

The value of ROI

The ROI Prerequisites

ROI measures the success rate of a marketing strategy and the benefits or losses that may result from it, relative to its intended goals.

With this in mind, it is essential to define the objectives of the marketing action to be carried out beforehand. For example, it may be to build customer loyalty, increase traffic or the conversion rate, etc.

To this end, it is relevant to use appropriate performance indicators to illustrate these objectives, such as:

The cost of lead acquisition (CPL): measures the profitability of an inbound marketing action by analyzing the costs spent on it. This concerns content creation, blogging, content management on social networks, etc.
Customer Lifetime Value (CLV): measures the net benefits generated throughout the customer's communication with the company. Expenses related to sales and marketing actions are deducted from these amounts. This indicator allows to define with foresight the budgets needed to conduct an acquisition or retention campaign.
The conversion rate (visitors/leads): indicates the percentage of visitors who have completed conversions. This ratio provides information about the efficiency of the conversion tunnel and the relevance of all the transformation steps. With the help of this KPI, the company can define the best strategy to adopt to optimize its conversions.
KPIs related to traffic sources:such as metrics provided by Google Analytics to measure organic traffic, referral traffic, direct traffic, etc. These KPIs highlight the most timely populations that generate the most traffic. This helps to choose the most optimal digital strategy to retain these audiences and turn them into customers.

What is ROI for?

ROI is a key KPI for measuring the profitability of digital investment and identifying marketing actions that need to be optimized for better performance. Among other things, this indicator allows:

Evaluate the effectiveness of the company's products/services and adjust associated policies.
Establish comparisons between the different investments made, taking into consideration the amounts invested and the gains or losses obtained. This guides in the company in its digital strategies and sheds light on the most favorable projects that must propel them to achieve its goals.
Measure the profitability of different traffic sources: social networks, website, natural referencing (SEO), paid referencing (SEM), etc. This is with the aim of determining which source generates the most traffic and optimizing the distribution of budgets invested between the different channels.
Orient decision making, while referring to the performance of completed campaigns, in order to avoid unprofitable actions and renew and prioritize profitable ones.
Provide tracking of marketing campaigns to analyze their potential and evolution over time.
Evaluate the company's competitiveness. Some partners use ROI to decide whether to partner with the company or not.

Interpreting ROI

The interpretation of this KPI differs depending on the type of investment to be implemented:

a brand awareness campaign whose objective is to develop brand awareness online, the organization's website, through social networks, the publication of articles on the company's blog or on partner blogs, etc.
An e-commerce project. The ROI of an e-commerce site is used to inform on the profitability of the strategies adopted to reduce the cost per conversion, optimize the conversion rate, increase the sales of the online store and the turnover.
An SEO campaign that is based on a set of optimization techniques (unique and quality content, internal linking, backlinks, keywords, strategic, etc) allowing the site to obtain an advanced ranking in the search engine result. The implementation of a thoughtful SEO strategy ensures a sustainable return on investment in the long term.
An advertising campaign, such as Google Ads, social media advertising, buying ad space, etc. This marketing action allows to promote a brand or a product/service, more quickly. This technique offers the advantage of ensuring a more precise targeting that directly addresses the target audience. It also ensures to seduce Internet users by these attractive advertising words and consequently strengthens the opportunities for conversion.
A content marketing campaign whose objective is to optimize the visibility of the company, through the publication of impactful and high value-added content (blog articles, white papers, storytelling, etc.) and that adequately meet the needs of customers.
An e-mailing campaign. It is a user-friendly direct marketing tool that allows to communicate with a well-targeted audience. This interactive solution ensures a faster return and offers the customer easier access to the relevant offer, which promotes conversion opportunities and consequently increases ROI.

How to optimize the ROI of your digital product

Creating a smooth conversion tunnel

The conversion tunnel is a powerful metric that informs the effectiveness of your product's user experience.

It covers all of the transformation steps designed to get traffic and convert it, while performing a specific action: making a purchase, signing up for a newsletter, etc., from product discovery to the actual act of selling.

In order to make your conversion funnel more profitable, you must:

simplify the conversion steps and focus on the fluidity of the path. In particular, in the case of filling out a form, limit the number of fields to fill out and focus only on the essential data for validation.
Create irresistible Call To Actions. To this end, use catchy phrases, which create a sense of exclusivity, such as: you have 10 hours left to take advantage of the offer, stock ending soon, etc.

Improve customer insight

Knowing customer needs is an indispensable factor in being able to optimize your ROI and foster your conversion funnel. Indeed, it is a flagship acquisition tool. The closer you are to your audience and the more you are always on the lookout for their needs, the more customer-focused and therefore more profitable your acquisition strategies will be.

Good knowledge of your customers helps develop quality content and the right messages to effectively meet your target's needs, at the right time. As a result, you can gain customer satisfaction. This automatically leads to improved ROI and conversion rate.

Here are some guidelines for getting to know your target more deeply:

You need to track down the various hindrances that make their UX (User Experience) more difficult and their journey more complicated.
Identify the details that elicit their empathy.
Identify at what point in the conversion funnel the customer abandons the journey.

Optimize navigation

Navigation is a key factor in ensuring a pleasant user experience and therefore, a better ROI. It is the basic element to orient the user and guide them to their goal. It also allows them to know where they are in their journey, at any given moment.

Here are some tips for building an effective browsing experience:

create a clean menu that is not cluttered with multiple items and use descriptive words with clear semantics.
Make use of the sticky top menu to help visitors navigate smoothly and find their way around easily. This increases the chances of conversions.
Insert a search bar to make the search process easier for web users. This is another effective factor in improving your conversions.
Develop a mobile friendly menu, which adapts to the display on mobile device screens. This is an unavoidable criterion to boost your conversions, especially with the ever-increasing number of mobile users (according to Cisco forecasts 33% of global internet traffic comes from mobile in 2021).

Improve loading time

Loading time is a crucial element in visitor retention. The slower it is (exceeding 3 or 4 seconds), the higher the level of site abandonment and bounce rate. To avoid this, it is important to:

Optimize media file size, reducing the size of large files, using dedicated compression tools.
Optimize the size of code files. To do this, it is important to minify HTML, CSS and Javascript files, in order to lighten the code and the weight of data to be retrieved from the server.
Enable caching to save, in a temporary manner, certain data that is often requested, in the browser memory. This increases the loading speed, by limiting the access to the server to each use of this data.

Designing Responsive User Interfaces

Responsive design is a design approach that involves creating an adaptive interface that aligns with the technical display constraints of the target device: desktop, tablet, smartphone.

Mobile First, has been presenting itself for the past decade as the primary method for optimizing the display of sites on mobile device screens. This is due to the radical transformation of the way people browse the internet.

Faced with colossal mobile traffic (5.22 billion mobile users in 2021), it is essential to design mobile-friendly interfaces that adapt to mobile viewing. Mobile First guarantees an impactful user experience, especially for mobile users. This allows you to aspire to an increase in traffic that is accompanied by an improvement in the conversion rate.

Closing Remarks

ROI is an important marketing metric that helps evaluate the performance of a marketing action and its alignment with set objectives. Furthermore, it is an effective decision support tool, guiding decision makers in their choices regarding the most cost-effective budgets, resources and marketing strategies.

The ROI can be complemented by the ROAS (Return On Ad Spend) which measures the profitability of an advertising campaign (such as Facebook Ads or Google Ads). This indicator provides information on which ad is the most profitable. This duo provides an overview of the profitability of all marketing actions.