How to Measure Online Marketing Success

(Direct) Advertising exists to help companies make money. That’s it. There are no moral victories in marketing.

Chances are you already know this, and you’re pretty careful about any print or other traditional advertising you purchase—if you don’t see a clear upside from an expense, it’s gone.

But do you do the same with Internet marketing? Online advertising is growing fast—companies that do no other advertising are using outlets such as Google Adwords, banner ads or search engine optimization to try to build sales. At a minimum, you have a Web site.

You need to track the return on investment of Internet advertising every bit as carefully as other media. Most companies don’t—that’s the bad news. The good news is that it’s fairly easy to measure the effectiveness of individual Internet assets.

Defining ROI is simple. You get a return on a piece of advertising when it helps you make money. Return on investment can be defined as anytime someone does what you want them to do, because of advertising designed to get them there.

It’s a little more difficult to measure than to define, of course. So there are four questions you should ask yourself to measure your online ad ROI.

Question 1: What’s Your Site’s Goal?

Why did you build your Web site? Please don’t answer “Because everyone has one”—even if you think that’s why you built it. There has to be another reason. Can’t figure it out? Try asking this instead: How does your organization generate value? Does it sell stuff directly? Through a sales force? Get donations? Inform the public?

Your Web site is there to expand your organization. Its goal is likely in line with larger organizational aims, which may include:

• Selling more stuff, right then and there.

• Generating leads, so salespeople can close the deal.

• Stirring interest in a product or service.

• Getting donations.

• Informing or persuading the public.

• Getting votes.

Next, you need to define how that goal plays out on the site. What do visitors do when they complete your objective—which could include reading a specific page on the site, viewing a video or reading a “thank you” page at the end of a transaction.

Goals run the gamut, from making money to less tangible variables. Regardless, there’s value generated. You can and must assess your Internet advertising’s ability to bring that value about. Which brings us to the next question.

Question 2: What’s the Goal Worth?

Now the hard part: What’s it worth to your organization each time you achieve that goal?

If you’re selling stuff online, it’s easy: Find out your profit per sale, on a sale-by-sale basis. If you have a sales force, it’s still pretty easy: Determine how many Internet leads convert to customers, and the average value of those customers. Then multiply the two:

If 25% of all Internet leads convert, and on average, each conversion is worth $1,000. The value of a lead is: .25 × $1,000 = $250.

If your only online goal is to get people to see a specific page, it can be a little more difficult. Say you want to get viewers to read an article. Say, over time, 1% of everyone who reads the article online will become a client, and the average client pays $1,000 a year.

1% convert and average value is $1,000. The value is: .01 × $1,000 = $10 per person reading the article.

Got a newsletter? Start tracking how often newsletter subscribers become customers:

10% of all subscribers become customers, and the average customer value is $1,000. The value of one sign-up is: .1 × $1,000 = $100.

Even groups that sell nothing can measure effectiveness. For example, a political organization focused on getting its message out could use a points system:

One person reading a specific article = 5 points.

One person viewing a specific video = 5 points.

One person signing up for a newsletter = 10 points.

One person joining the organization = 100 points.

This is pretty arbitrary, but it works as a comparative measure:

Campaign 1 got 30 people to watch a video: 30 × 5 = 150 points.

Campaign 2 got 500 people to watch that video: 500 × 5 = 2,500 points.

We may not actually be able to know the precise value of each campaign. But we can know their relative effectiveness. The point here is you should always consider what your Web site’s goal is worth. Accuracy is important, but consistency is crucial—as long as you can measure relative effectiveness, you can evaluate advertising effectiveness.

Question 3: How Many Times Was the Goal Achieved?

You know what your conversion goal is, from question 1. Now you need to know how often you accomplished it. To do that, four basic metrics are required:

1. Landings on a specific page or file

   You can measure the number of times a specific page or file is viewed using Web site traffic-analysis software (such as WebTrends, Urchin or Webalizer).

2. Where your referrals to the site originated

   Again, traffic-analysis software can provide this.

3. Conversions

   Some ad networks, like Google Adwords, provide built-in conversion tracking, so you can tell which ads generate value and which don’t.

4. The source of each conversion

   If you’re really on the ball, you’re using software like Urchin to measure conversions generated by every advertising asset: Ads, search engine keywords, e-mail newsletters, and so on. If you’re selling stuff online you’d use the four conversion metrics like this:

Shopping cart “order confirmed” page viewed 400 times, so there were 400 orders. 30 of those orders came from Google Adwords Ad #3. Those 30 orders totaled $4,000, with a profit of $3,000. So Adwords Ad #3 generated $4,000 in income, with a net value of $3,000.

Or, if you’re looking at leads:

Information request “thank you” page viewed 400 times, so there were 400 leads. Thirty of those leads came from Google Adwords Ad #3. Those 30 leads have an average value of $250 each. So Adwords Ad #3 generated $7,500 in value.

If you’re measuring less tangible value:

Article A was viewed 400 times, meaning 400 people saw the message. Thirty of those views came from Google Adwords Ad #3. That’s worth a total of 150 points. So Adwords Ad #3 generated 150 points. But if the e-mail newsletter generated 5,000 points? Then the newsletter generated more value.

Question 4: What Did It Cost?

Now you bring it all together. What did you spend to achieve your goal?

If you’re collecting all three conversion metrics, you’re set: Look at the value of each individual conversion in light of the cost of the advertising asset that generated that conversion:

Sale 1 generated $1,000. It came from Adwords Ad #3. The company spent $50 on clicks from that ad before it got this sale. So it spent $50 to get $1,000 in business.

Then average it out:

Sales from Adwords Ad #3 were worth $12,000. $1,000 was spent on that ad. It’s safe to say the company did pretty well.

If you only know landings, referrers and conversions, you can still figure out general performance:

This month there were 400 visits from Adwords Ad #3. Those visits cost $50. The firm didn’t get those last month.

This month an additional $2,000 in sales came in from products promoted in Adwords Ad #3. The company didn’t do anything else. Chances are, Adwords Ad #3 brought about most of those sales.

This isn’t perfect, obviously. But you can at least determine which Internet advertising assets are a total flop:

This month the company’s Web site got 400 visits from Adwords Ad #3. Those visits cost $50. No additional sales were made this month. Therefore, Adwords Ad #3 isn’t working.

It’s better to know for sure, on a conversion-by-conversion basis, what’s creating value. But even if you don’t know that much, you can at least do a gut check and know which ads are ineffective. Armed with that knowledge, you can make changes and see whether those changes improve results.

There are many, many payoffs from basic ROI measurement.

First and foremost: You can measure which ads and campaigns generate value and which don’t. The other benefits are almost as important, though. By gathering this kind of data over time, you can measure more than the effectiveness of individual assets—you can determine how well whole marketing campaigns are doing.

That kind of business intelligence is invaluable. It means that measured Internet advertising delivers value far beyond individual sales. Answer the four questions and you’ll help your organization in the short term, with more effective Internet marketing. You’ll also help in the long term, with strategic data you can use to refine all your marketing efforts.

Ian Lurie is president of Portent Interactive, Seattle.