Internet Marketing Cost Effectiveness
What are the main steps in the online sale process?
Advertising tools attract potential customers to the site. Tools can be different: seo, contextual advertising, display advertising, advertising on social networks, etc.
Part of the attracted visitors to the site performs the action you need: it orders a product or service using the order forms or calls on the phone number indicated on the site.
A part of potential customers who ordered and called made a purchase.
Each transaction brings the company some profit.
That is, if the cost of advertising on the Internet (website promotion) amounted to 10,000 rubles for the period, then the profit from sales through the website for this period should be more than 10,000 rubles, and then the investment efficiency in website promotion is more than one – and this is good.
The final indicator of the effectiveness of investments is ROI (the ratio of the amount of profit to the amount of investment): profit 10,000 / cost 10,000 = 1.
Of course, I want the effectiveness of investments in promotion to be more than one.
If you already understand everything, then calculate the effectiveness of your Internet marketing costs on the ROI calculator.
Let’s see what affects this indicator, which intermediate metrics you need to track and, accordingly, influence them.
An example of calculating the effectiveness of advertising
Each new visitor attracted to the site costs a lot. We spend 10,000 rubles on advertising, we get 1,000 visitors, which means that the cost of one visitor is 10 rubles.
The cost of the visitor needs to be reduced, and the number of visitors must be increased.
Not every website visitor performs the necessary action (leaves an order or calls). The ratio of the number of visitors who completed the necessary action to the number of attracted visitors is called site conversion.
If you attracted 1000 visitors, and 30 of them placed an order, then the conversion of the site through this channel of attraction was 3%.
Website conversion needs to grow.
With this conversion, the cost of one action (order) is 333 rubles: these are costs divided by the number of targeted actions received.
To reduce the cost of action, you need to increase the conversion of the site and improve the “quality” of visitors without increasing their value.
At the same time, it is important for business to know what marginal cost of action is acceptable for it!
Next, we’ll talk about indicators that need to be tracked not on the site side, but on the side of the enterprise’s accounting systems.
Converting Orders to Sales
Conversion of actions into transactions
Not all calls from the site (orders, calls) turn into transactions. Here, too, there is a conversion, and depending on the type of business, it is different: in the online store it can be 90%, and for example, in sales of construction equipment – 10%.
The amount of conversion depends, in the case of an online store, on the quality of logistics and service processes, and in the case of construction equipment, on the quality of work of the sales department.
In our example, for clarity, the conversion into transactions is 90%, and we have 27 completed transactions.
Accordingly, another financial metric appears – the value of the transaction. Here we are talking about the value of the transaction, which does not include any offline costs, such as: delivery and maintenance of the sales department. One transaction in our case cost 370 rubles.
You can reduce the transaction value by lowering the cost of the order (circulation) without reducing their number and increasing the conversion of orders and calls to transactions.
Every business needs to know what marginal transaction value is acceptable for it!
The average check is the sum of all completed transactions for the observed period of time, divided by the number of transactions for the same period.
The indicator is important, because with the same transaction costs, the profit with a larger average check is greater.
Suppose that the average check in this business is 2,000 rubles, we have 27 transactions, the total amount of transactions is 54,000 rubles.
Margin Profit Size
An Internet marketer cannot influence this indicator, and he does not always know what the mark-up on the product is or what is the profitability of the service being promoted. Business knows about this. In our case, let’s say that the margin is on average 20%, then the marginal profit on the average transaction will be 333 rubles. That is, profit on an average transaction is less than transaction costs. The profit from all transactions is 8990 rubles, that is, less than the cost of advertising, and this is bad.
So, in the advertising area, in our example, we spent 10,000 rubles, earned 8,990 rubles. In our case, the return on investment ratio was 0.89, that is, the funds spent on advertising did not bring profit, but losses, and one spent ruble returned 89 kopecks.
How to increase efficiency?
Firstly, you need to fix the current metrics, and if they are not tracked, then set up their tracking and accounting, that is, fix the situation as is.