Revenue metrics are the ultimate judge of your marketing campaign. If you understand revenue metrics, you can understand how profitable your digital marketing efforts are. Then you can make changes or expansions in your marketing strategy to drive more revenue for the business. Some important revenue metrics in digital marketing are:
Let's talk about important revenue metrics including:
- Return On Advertising Spend (ROAS)
- Customer Acquisition Cost (CAC)
- Return On Investment (ROI)
Return On Advertising Spend (ROAS)
Return on Advertising Spend (ROAS) is the total amount of money the company receives for every dollar that spent on advertising. This metric shows you the relationship between money spent and revenue made. ROAS increases as your advertising leads to sales.ROAS will help you evaluate which advertising methods are working and where you need to improve your advertising spending.
To calculate ROAS, divide the sales generated from advertising by the amount spent on advertising. For example, imagine you spend $1000 on online advertising in a single month. Sales from advertising increase $10000. Then ROAS this month would be $10 ($10000 / $1000). In other words, for every $1 spent on advertising, you generate $10 revenue. Similarly, you can calculate your own ROAS to keep track of which campaigns generate the most returns and keep testing. Keeping track of your ROAS data is crucial to make strategic marketing decisions. ROAS will help you make informed decisions on ad budget spending.
Customer Acquisition Cost (CAC):
Customer acquisition cost (CAC) is the total amount of money spent to acquire new customers. This is the cost of convincing your potential customer to buy or use your services. CAC is calculated by:
TOTAL MARKETING EXPENSES + TOTAL SALES EXPENSES/#OF CUSTOMERS ACQUIRED
CAC is important because it enables both investors and internal team members to understand the company's ability to grow. For investors, especially those involved with start-ups, CAC is extremely important because it shows the company's profitability. By looking at the difference between customer spending and the price to acquire customers, we can hypothesize about the future health of the business. Investors are ultimately interested in providing the company with the resources it needs to grow. CAC shows us which efforts will bring about long-term growth.
CAC helps internal teams justify investments. This metric guides decision making to maximize ROI on company spending. A lower cost to make money means a greater profit for the company.
Return On Investment (ROI)
Return on Investment (ROI) is the amount of money you have generated from the investments you have made. ROI can be slightly more complicated for marketing departments than other departments. To calculate ROI you have to be an effective marketer that connects their time, money, energy and advertising spending with results that contribute to the company's growth.
Effective marketers always calculate their ROI to make sure that their efforts are contributing to company growth. Tracking ROI will help illuminate the progress made from marketing investments.
Of course, there are hundreds of other metrics in digital marketing. When we start connecting data to our marketing efforts it can become very complicated very fast! However, these metrics (traffic generation, conversion, and revenue) will start you off on a healthy path towards understanding the connection between your marketing efforts and the business’s bottom line. Become a superstar data-driven digital marketer today!