Tracking ROI: Traditional Versus Online Marketing
ROI, or return on investment, is referred to as the profit gained from an investment. It also refers to the cost that was saved because of that investment. In other words, ROI is the proof that the investment you made is or will be worth it in the end.
ROI is a big concern for marketers, even if it can be a bit of a slippery fish at times (more on that later). Advertising is an investment, and it can be an expensive one too. This is why ROI is critical: the business owner has to know that he’s putting money into something that will give it back with a profit. Otherwise, he might as well be tossing his cash into a bottomless pit.
ROI can be calculated. Every good businessman has the formula set in stone:
When you decide to employ the services of a professional to help you market your products, you can expect him to touch on the subject of ROI when he’s giving his sales pitch. He could recommend to you the best forms of advertising, according to your budget and company profile, which will give you the best returns.
Still, most of the time, it’s not enough that you solely rely on the advice of another. You need to be able to calculate and track ROI on your own to help you with your decision-making, as well as to help you see if your marketing strategies are truly working.
Two Types of Marketing
I’m sure you’re aware that today, you have more outlets for your marketing strategies. If you’ve also read our article on digital marketing, then I assume that you already know the difference between push marketing and pull marketing. For now, let’s focus on two of the major forms of marketing, which are traditional and online marketing.
Traditional marketing is a form of push marketing or outbound marketing wherein you “push” information on people who may or may not want to know more about your company and its products. The relationship between the advertiser and the audience is just one-way. Examples include television commercials, radio broadcasts, direct mails, and print advertisements.
The purpose of traditional marketing is to raise awareness for your brand. You simply want the popularity. You’re also not very specific with your target audience. The more people that the advertisement reaches, the better your chance of reeling in potential customers. In a simple world, anyway: in real life, we know other things play a role in this, such as the types of customers who do see your ad, your ad’s efficacy, etc. But we can keep it simple, at least for the moment. There’ll be enough time to complicate things later.
Meanwhile, online marketing is a form of inbound marketing or pull marketing wherein you “pull” a specific group of people toward your website using high-quality content, optimized advertisements, and SEO strategies. It promotes a two-way relationship between the advertiser and the audience because there’s a platform for communication.
Online marketing also means that it’s the buyer who actively looks for the seller. In traditional marketing, it’s the other way around.
There are a lot of arguments on which is better and more effective. Both have pros and cons, obviously, and you can also use both for the promotion of your business. It’s just that you have to know when’s the best time to use one or the other.
Like when you’re just starting out and you are new to the advertising world. We can’t expect you to have as big a budget so as to be able to use wide media like the television or the papers immediately (unless you’re really, really rich). For the time being, while you’re establishing yourself, you can use online marketing for promotions and branding. Only once you have a significant number of customers, a good reputation, and a steady trickle of profit, should consider going mainstream with your advertising.
Tracking ROI in Traditional Marketing
Calculating the ROI from your traditional marketing strategies is somewhat different from calculating the ROI from your online marketing strategies. The difference lies with the tools that you can use to measure conversion rates and track the ROI. Let’s start with traditional marketing.
In traditional marketing, there’s really no sure way of measuring and tracking the ROI. The best that you can do is come up with estimations for the gain you could get for that investment. I know some people who would just take notes on how much they spent for an ad, and then compare it to the profit they earned after using that ad. Precise? Definitely not. But few things are when it comes to calculating ROI for marketing campaigns, whether online or off it.
Why is it so difficult to track ROI for traditional marketing?
It’s because your audience is very wide, and there’s little means by which you can measure conversion rates. For instance, you don’t know who sees and who really looks at your ads on television or on the newspaper. You’ll find it very difficult to guess if a person who buys from your store was led there by your billboards or your fliers.
Still, there are so-called “surrogate” means of measuring ROI in traditional marketing. Instead of focusing on the profit you gain, why not look at how much you’ll save with an investment? Remember that traditional marketing is one-way, and its main purpose is for brand awareness. Knowing this, what media will you use to increase your brand awareness, and at the same time save you money?
Another way is by measuring the conversion of sales before and after marketing. Before you put up an ad, how was business? Now that you have an ad, what changes have you seen in your numbers? For print advertisements, there’s usually a unique phone number or an email address that people can use to contact the company.
You can use the number of people who call, text, or email these details to measure the number of people who have seen or heard about your ad. These are just some of the ways traditional marketers measure the success of their campaigns.
Tracking ROI in Online Marketing
With online marketing, tracking and measuring ROI can be both easier and harder. Let’s take the easier route first: it becomes easier because the factors that you’re looking for can easily be measured using online tools. Take, for example, with SEO.
SEO, or search engine optimization, helps increase your visibility on the Internet, mainly on search engine results pages. It is the process of optimizing your site in such a way that it will be deemed relevant by search engines like Google.
If you do your SEO right, then you can expect a higher ranking on the SERPs when a person searches for keywords that are related to your business and products. More importantly, people will see that your website has content that is relevant to their needs, boosting your credibility and chance for conversion. Neil shows an easily digestible explanation here but obviously, anytime you talk about ROI, it will always be controversial.
In this great article from Himanshu, SEO’s ROI isn’t only measured by the amount of traffic driven to the page, the ranking on the SERPs, and popularity. It also focuses on the revenue that will be generated because of SEO.
You can measure the success of SEO by comparing your anticipated ROI with the actual ROI. Factors that need to be considered for both anticipated and actual ROI are the number of the website’s monthly visits, your budget used for SEO, how much you earned upon using an SEO strategy, and the conversion rate.
With anticipated ROI, you set your goals, not forgetting the four factors mentioned above. Then actual ROI shows you how you’ve actually done. Comparing the two will help you optimize your site better and implement your SEO strategies more efficiently.
Aleyda Solis created this international SEO calculator based on Himanshu’s article mentioned above. I personally love it so props to them!
Aside from SEO, online marketing allows you to use social media for the promotion of your business. You can create social pages where you can interact with your followers, and you can post listings on social “directories” to lead people to your brick-and-mortar store.
The good thing about using social media is that every important variable can be measured, and you don’t have to do the measuring manually. The bad thing about using social media is that it’s the part of online marketing for which ROI becomes nearly impossible to calculate with any certainty, at least if we consider ROI in the ultimate sense of “turning a profit”. In that sense, it might have something in common with traditional marketing campaigns.
The thing is, most social media campaigns don’t have a direct cause-to-effect relation with profits. Just take a look at your Twitter account and read the latest tweets from companies or businessmen you follow: those tweets are examples of social media marketing already.
Now here’s the question: How many of those tweets actually make you buy something from the company tweeting it right after reading?
The reality is that even if a social media marketing campaign eventually ends up contributing to your profits, it will be in a way that’s more or less impossible to directly measure. People read a tweet, nod or smile or even retweet it… and then they move on.
They don’t usually rush over to the tweeter’s site and purchase a product or service. Maybe they will, far into the future and partly because they remembered that tweeting company’s amusing message or update.
But by that time, so many other things have influenced them in between the first tweet and the sale that it would be silly to attribute the sale to that tweet alone.
Add to all this the fact that applying the formula mentioned earlier in this post would be pretty hard here (how do you even figure the cost of tweeting?) and you realize that figuring ROI as profit in the traditional way would be an impossible undertaking for any marketer.
A solution might be to redefine “ROI” in this situation. That is, by considering secondary steps in the long and tortuous process whereby marketing leads to profit.
In fact, this is what a lot of social media marketers do instead now: instead of talking about the ultimate goal (the sale), they talk about one of the minor goals. They assign KPI’s (Key Performance Indicators) to track. They talk about getting a consumer to sign up for an email newsletter. They talk about bringing up page traffic. They talk about website hits. All of these can be key performance indicators. Which one is most apt for you depends on your plans and your total marketing strategy. Again, you can’t be sure it’s a straightforward cause-effect relation, but at least you have a better idea of whether or not what you’re doing is getting you what you want to get. Whether or not you can use what you do achieve as part of further plans to get you closer to more sales, though, is another matter.
Update: You might want to look at this article from Polly Pospelova if you want to automate (most of) your ROI reports.
In the End, Which Is Better?
So is going digital better than traditional marketing since ROI can be better tracked?
The obvious answer? There’s really no sure answer to this because both traditional and online marketing have positive effects on your company. This might sound like a cliché, but the answer depends on you. I say this because you have your own purpose for advertising.
What do I mean? If you go for traditional marketing, then this might mean that you are focused on brand recognition. This could also indicate that you have already established a reputation, and you’re seeking ways to expand your reach in terms of target demographics.
While tracking and measuring ROI is important in helping you calculate sales and revenue, ROI is not the priority in that case. Exposure is. The purpose of marketing is number one.
If you use online marketing, you might give more importance to ROI because you would like to measure all the variables that have an effect on the visibility of your business. You work hard to study what drives traffic to your page, what SEO techniques to use to increase your ranking on the SERPs, and how to optimize your site and ads to save money and gain more money. In this case, the priority is on the conversion rates and the effect of the marketing strategy.
Someday, when you business is ready, you may not even have to choose between the two, since it’s very possible that you use both forms of marketing to enhance the reach of your business. In fact, many now advocate a blend of the two.
Again, whatever works for your purposes: don’t go with one exclusively just because it happens to be “the default” for your type of business. If mixing both types happens to be just what your brand needs, do it—just be aware of how and why you’re doing it, and what you want it to get you.