How do you measure the return on investment (ROI) of web analytics activities?

ROI is a crucial metric because it helps businesses assess the profitability of different initiatives and compare the efficiency of various investment options. By calculating and comparing the ROI of different projects, companies can prioritize investments and allocate resources to maximize their returns. It's important to note that ROI is just one of many metrics used in decision-making. It provides a valuable snapshot of the financial performance of an investment but should be considered alongside other factors such as risk, time horizon, and strategic objectives. Additionally, ROI calculations can be more complex when considering factors like the time value of money and ongoing costs and benefits over an extended period.

First of all, it is necessary to define another term used in advertising, which is ROAS (Return on Ad Spend), which basically represents the value generated in relation to the amount invested in media/advertising. With this in mind, let's move on to ROI. ROI (Return on Investment) is a metric that allows us to understand the financial impact of investments made in different online channels, presenting the result obtained in each action or campaign. Additionally, the ROI calculation can also include expenses associated with new tools and training in the field. In other words, when calculating ROI, we must include peripheral expenses related to marketing investments.

ROI = (Gain from Investment - Cost of Investment) / Cost of Investment It is expressed as a percentage representing the amount of return or profit generated per dollar invested. A higher ROI percentage means each dollar invested is generating more returns, which is favorable. In the example I gave, if you spend $100 on a campaign and get $150 revenue back, the ROI calculation would be: ROI = ($150 - $100) / $100 = 50% So a 50% ROI means for every $1 invested, $1.50 is generated, giving a return of 50 cents per dollar invested.

I have another perspective of ROI that is aimed at evaluating both the analyst and the analysis. This quote from Culen Hightower, an American writer sums it best. "The true measure of your worth includes all the benefits others have gained from your success." I feel that the more people who live by intention of this quote, more value would be generated in society.

When business invest money towards revenue generating activities, they use ROI (return on investment) to evaluate and rank various initiatives before deciding on those with the most bang for the buck. A good example is ad spend, where it's okay to scale up advertising, as long as each incremental dollar continues to generate more revenue and the return is sufficient to cover not only the cost of the activity, but also scaling up delivery of service/goods.

Providing clients or internal stakeholders with evidence of an ROI, you'll be able to retain and grow your book of business. The ultimate goal of any digital marketing or advertising campaign is to drive more sales. If you can't provide that to stakeholders, then your campaign will probably be short-lived. Not all tactics contribute directly to the bottom line though, so it's important to understand how else you can prove a return on investment. One of these ways is through conversion tracking and assigning a "value" to these actions. Conversion values are arbitrary amounts that should be assigned based on the action's ultimate value in moving someone down the funnel. It can be as complex or simple as you want.

ROI is important not only in the web analytics space, but also the physical world, as it helps prioritize various marketing and business growth related activities. For e.g., imagine that you spend on average $10 per customer email collected on average, and it's reasonably close on both your website and your Guest Wi-Fi portal. If your average cart size $50 profit is $5 and number of transactions is 5, ROI could be 2.5X ($25 / $10) = 2.5 However, a more granular calculation could show that those who sign up with Guest Wi-Fi tend to perform more transactions than those acquired online. Say that number is 10 transactions, the ROI ceterus paribus, would be 5X.

ROI is important because it helps evaluate the effectiveness and efficiency of web analytics activities. It helps answer questions like how much value is being obtained from web analytics tools and services, how well data and insights from web analytics are being used to improve website performance, and how web analytics activities compare to other marketing or business initiatives. Measuring ROI justifies the web analytics budget, allocates resources wisely, and optimizes strategies and tactics.

The simple way to calculate ROI is to take the revenue generated and divide it by money spent. This will give you a ratio you can then use to show how many dollars each dollar spent produced. The more complicated way entails identifying conversion actions on your site or app and then assigning value to them. This may be easy for something like an add to cart which has an inherent value you can use from the product itself. Other conversions like calls, chats, etc. are more difficult to assess but not impossible. A simple way to do this is to take the average close rate your sales team has for calls, web chats, or people in a retail store. Then multiply your average ticket value by that percentage and viola! There's your conversion value.

To calculate ROI for web analytics, you need to follow three steps: identify your goals, measure your benefits, and measure your costs.

I view web analytics as an invaluable tool for measuring the ROI of our marketing efforts. While directly attributing revenue to specific analytics insights can be challenging, we can effectively calculate ROI by tracking key performance indicators (KPIs) that align with our business objectives. By comparing the costs associated with our analytics tools and implementation to the revenue generated or costs saved as a result of data-driven decisions, we can quantify the return on our investment. Additionally, considering intangible benefits such as improved customer understanding and increased efficiency can provide a more holistic view of the overall value of web analytics.

Identifying goals should be done by analyzing your users' buyer's journeys on your website or app. Doing this, you'll be able to identify key actions and patterns that users take that lead them to buy your product or service from you. After doing this, you should then break up those actions into high, mid, and low funnel actions. These actions (conversions) can then be leveraged as goals for various marketing tactics and activities. For example, blogging might be more focused on top-of-funnel conversions, while Google Shopping campaigns target low-funnel buyers and would optimize towards users who are more likely to take a low-funnel conversion path on your website.

I would recommend to always start with your goals of your web project/campaign first and only then define the analytics and ROI calculations around it. OKRs can be a great tool for this.

Goals are specific and measurable outcomes that you want to achieve through your web analytics activities. They should align with your overall business objectives and strategy and should define a time frame and a baseline for your progress. Some examples of goals include increasing traffic, conversions, sales, retention, and loyalty. You should track and analyze your website's performance to regularly assess your progress towards achieving your goals.

Navigating the maze of web analytics metrics demands a singular focus on a KPI that aligns with your business goals. For instance, optimizing for both conversion rate and ROAS can be counterproductive, as these metrics sometimes move in tandem. A high conversion rate doesn't necessarily equate to a favorable ROAS, making it impractical to chase multiple KPIs. In the digital world, data is king. Intuition and "intangible benefits" have no place. Even seemingly unquantifiable metrics, like customer satisfaction, can be measured via digital surveys. If it's not measurable, it's not manageable.

Measuring your benefits is an important part of your web analytics strategy. It helps you understand the positive impacts or results you have generated from your analytics activities. You can use metrics like conversion rate, average order value, customer acquisition cost, customer retention rate, etc. to measure your benefits. Intangible benefits such as improved customer satisfaction, brand awareness, and reputation should also be considered. The ultimate goal is to ensure that your analytics efforts are not only providing value but also driving tangible business goals.

Measure your costs: To monitor the costs incurred in your web analytics activities, you should consider the fees for tools and services, salaries and training of staff, time and resources spent on data collection and analysis, and the opportunity costs of other projects or activities. Additionally, it is crucial to identify potential risks or drawbacks such as data quality issues, privacy concerns, or ethical dilemmas.

The biggest challenge in calculating ROI for analytics investments, or ROA, is the attribution. Should the performance improvement of digital advertising be attributed to the analyst who tagged the site, an analyst who recommended action, or the marketer who wrote the copy or decided how to target the campaign? In practice, everyone wants to attribute success to themselves. This is equally true when talking about advertising campaigns or company teams.

The biggest challenge, and effort worth spending time on, is a logical attribution. Attribution is the exercise of defining what step in a customer engagement funnel resulted in the desired action taken by the customer. For e.g., did a customer convert partially because of the ad they saw on their phone, and rest because of being a member of the loyalty plan? Calculating a simple ROI can be a great indicator to start with, but defining a logical method to attribute customer behavior to the right activity will help ensure maximum investment in what works. That is a key differentiator between brands that are able to really double down and hyper optimize their activities, vs those that don't.