Key Digital Marketing Formulas and Metrics for Effective Analysis
As a marketing professional, you live and breathe performance metrics. Conversion rates, click-through rates, bounce rates — these numbers determine the success or failure of your campaigns. But do you fully grasp the formulas behind these key digital marketing metrics and how to scale them for increased ROI? Top marketers and agencies around the world take an ROI-focused, performance marketing approach to optimizing analytics. In this guide, we'll define the most essential digital marketing metrics that we analyze for performance, explain the formulas behind them, and provide proven, actionable solutions for improving each one.
Conversion Rate (CR or CVR)
Conversion rate is the percentage of people who complete a desired action. This could be a purchase, signup, download, sale, or any number of actions. Conversion rate shows up in a number of digital marketing channels such as content marketing, and online advertising.
How to Calculate Conversion Rate
Conversion rate = (Total Conversions/Total Visitors) x 100
For example, if you had 10,000 page views in a month, and the number of conversions on your website in that month is 200, your conversion rate would be:
(200/10,000) x 100 = 2%
How to Interpret and Increase Conversion Rate
If your conversion rate seems low, here are four tips to boost it:
- Optimize landing pages: Simplify layouts and your impact statements, highlight CTA buttons, and showcase social proof.
- Target higher-intent visitors: Focus ads and keywords on those more likely to convert. Your messaging should speak to the audience most primed for your offer.
- Improve the user experience: Check for friction points in the purchase process or site navigation. Most importantly, make sure your page is mobile optimized first.
- Retarget non-converters: Bring back those who didn’t complete the conversion with tailored ads and offers. Build specialized landing pages with messaging that ties back to the copy that caused them to engage in the first place.
Test your changes week over week and watch your conversion rate climb steadily upward.
Return on Investment (ROI)
ROI is the number one metric that drives your business. In the simplest way, ROI measures what you get out compared to what you put in.
How to Calculate ROI
ROI = (Net Gain/Total Cost of Investment) x 100
For example, if you earned a $50,000 in new sales from an ad spend of $10,000, your ROI would be:
(50,000/10,000) x 100 = 500%
Follow these four tips to get the most out of your ROI:
- Test new channels: Expanding beyond seo, digital advertising and social media can unlock new customers. Maximizing ROI means meeting your audience where they are.
- Analyze campaign performance: Double down on what delivers and cut what doesn't. You can enjoy a higher ROI by eliminating digital marketing campaigns that underperform or barely hit your benchmarks. Your budget will be better spent on your top performers.
- Price Testing: Are you underselling your product? Conduct consistent price tests to gauge what your customers are willing to spend.
- Upsell & Cross-sell: Show customers the value of your products through your upsell path for three-to-five times your average order value.
Read how the digital marketing experts at Banzai optimize ROI for different industries.
Click-Through Rate (CTR)
In digital marketing, click-through rate (CTR) is a crucial metric for assessing the effectiveness of your content and ad campaigns.
It measures the percentage of people who click your call to action after it's shown to them. The higher your CTR, the more effective your call to action is.
How to Calculate CTR
CTR = (Total Number of Clicks/Total Number of Impressions) x 100
For example, if your ad was displayed 500 times (number of impressions), and 25 people clicked on it (number of clicks), your CTR would be:
(25/500) x 100 = 5%
How to Increase Click-Through Rate
To boost your CTR, be sure to:
- A/B test different headlines, copy, and imagery. If your images utilize copy, A/B test that messaging as well.
- Use appealing images, visuals, and charts that resonate with your target audience and show their potential end state after using your product or service.
- Target high-intent keywords and audiences in your ads. Personalized ads typically yield a higher CTR.
- Highlight your unique value proposition clearly and tailor it to your target audience.
- Make call-to-action (CTA) buttons obvious and enticing. Instead of a simple “Click Here” button, frame the end state as a result of this action.
Ex. “Click Here for 11 Marketing Tactics That Will Increase Your ROI”
With continual optimization, you can capture more qualified clicks for every impression.
Tracking engagement is crucial for successful marketing campaigns and virtual events.
Engagement rate measures how actively your audience interacts with your content. For virtual events, it can quantify the level of attendee participation.
Virtual events like webinars can be a huge driver of revenue to your business. Here’s how Banzai takes the key marketing metrics in this guide to boost ROI for webinars and virtual events.
How to Calculate Engagement Rate
Engagement Rate = (Total Interactions/Total Participants) x 100
The total interactions could include metrics like:
- Poll responses
- Questions asked
- Content downloaded
- “Contact Us” clicks
- Calls booked
For example, if you have 50 attendees at an event, and 25 people download content included in it, you have a 50% engagement rate.
(25/50) x 100 = 50%)
How to Boost Engagement
Here are four proven tactics to increase engagement:
- Incorporate interactive elements like polls, Q&A sessions, featured actions, and chat using a platform like Demio.
- Send pre- and post-event email series to motivate attendee participation. This creates excitement around the event and opens an opportunity to win business in the days following the event.
- Provide discussion prompts and conversation starters. We recommend having an active moderator in the chat who can answer questions and encourage discussion.
- Gamify the experience and reward engagement by offering exclusive perks for active participation or a bonus discount at the end that will increase audience retention.
Cost Per Click (CPC)
One of the most overlooked but easily optimized metrics is CPC. This metric shows how much you pay for each click on the ad network you’re advertising on.
How to Calculate CPC
CPC = Total Ad Spend/Total Number of Clicks
For example, if you spent $1,000 and earned 2,000 clicks, your CPC would be:
$1,000/2,000 clicks = $0.50
Optimizing PPC Campaigns
Follow these tips to reduce CPC:
- A/B test ad copy to increase click-through rate.
- Target keywords with higher user intent that match the keywords in your ad copy and landing page.
- Use negative keywords to avoid irrelevant clicks.
- Create more targeted ad groups around products, services, and high user intent keywords. This will give you more control over CPC in smaller chunks, allowing you to direct a larger portion of your budget to the most scalable ad groups with the lowest CPC.
With smarter optimizations focused on CPC, you can do more with your budget.
Cost Per Lead (CPL)
For lead generation campaigns, CPL is the metric to master. This calculates your cost to acquire each new lead.
How to Calculate CPL
CPL = Total Ad Spend/Total Leads
So, if you spent $5,000 and generated 500 leads, your CPL would be:
$5,000/500 leads = $10
A lower CPL enables you to acquire more leads for your budget.
To lower CPL, focus on:
- Targeting higher intent keywords and audiences who are aware that your product can be the solution to their needs
- Creating compelling lead gen offers with outside-the-box angles that your competitors are neglecting. Build a unique presence in your space and watch how the masses migrate to your product.
- Optimizing landing pages with the 1-1-1 approach (Angle to -> Ad Copy to -> Landing Page Copy) for a better message match. This allows you to reduce CPLs across different audiences and messaging.
- Retargeting ads and special offer pages that’ll entice users to sign up. Bonus offers via e-deliverables are great for adding value to your lead magnet.
- Meeting people where they’re at through multi-channel marketing. Make use of the large, low-cost inventory that display and native networks can provide.
Customer Acquisition Cost (CAC)
CAC measures the cost of securing new customers. For marketers, reducing CAC boosts ROI and is a key driver of marketing performance.
How to Calculate CAC
CAC = Total Marketing Spend/Total New Customers
For example, spending $20,000 to gain 100 new customers equals a CAC of:
$20,000/100 customers = $200
How to Decrease CAC
- Focus marketing on high-intent segments first. This will be your gauge of an effective sales funnel.
- Create irresistible offers and discounts through upsells, cross-sells, and shopping cart add-ons.
- Ex. “You’re $25 away from unlocking free shipping PLUS a free gift (worth $199 in value). Choose from this list of products.”
- Launch referral programs to score word-of-mouth sign-ups through organic or paid social media campaigns.
- Build email nurture series to convert prospects.
- Test a mix of lower cost acquisition channels. Take your strongest offer and test native ad and display networks with ad units that have a much cheaper cost per click.
See this article on how Banzai measures marketing performance for success.
Monthly Recurring Revenue (MRR)
For SaaS and subscription businesses, MRR is a vital metric.
It measures the amount of predictable recurring subscription revenue your business generates each month. MRR offers visibility into the health of recurring income streams and highlights your most profitable audience segments from your lead generation efforts.
Learn more about Banzai’s SaaS marketing strategies
How to Calculate MRR
MRR = Total subscription revenue in a month
For example, if you have:
- 500 users paying $10/month
- 200 users paying $20/month
Your total monthly recurring revenue would be:
- 500 * $10 = $5,000
- 200 * $20 = $4,000
Total MRR = $5,000 + $4,000 = $9,000
How to Optimize MRR
Here are three tips for boosting monthly recurring revenue:
- Offer premium subscription tiers packed with value and exclusive content (that don’t hurt your profit margins).
- Incentivize annual subscriptions. You can do this with a discounted price tier or access to exclusive content and digital communities for this specific group of members.
- Upsell and cross-sell to existing customers with special offers, holiday promotions, and early renewals.
With smart, MRR-focused campaigns, you build better, more predictable revenue streams.
In subscription businesses, churn rate quantifies customer cancellations.
Churn rate shows the percentage of customers who discontinue their subscriptions over a given period.
How to Calculate Churn Rate
Churn Rate = (Customers Lost in Period/Total Customers at Start of Period) x 100
For instance, if you had 1,000 customers at the start of a month and lost 50 of them by the end of that same month, your churn rate would be:
(50/1,000) x 100 = 5%
A lower churn rate indicates stronger customer retention and should be one of the metrics you review most regularly.
How to Combat Churn
Below are four proven strategies to reduce churn:
- Deliver an exceptional customer experience by proactively listening and responding to customer feedback.
- Implement “Win Back” support teams that can offer customers a partial discount on extending their subscription or additional months of the service at no cost or with contingency.
- Offer loyalty perks and promotions for your current buyers.
- Analyze churn data to understand key drivers.
Churn may be inevitable, but incorporating these practices equips you to increase customer loyalty and drive revenue.
Customer Retention Rate (CRR)
In addition to minimizing churn, you must aim to maximize customer retention.
Customer retention rate shows the percentage of customers you keep over a specified time period. It complements churn rate as a key retention metric.
How to Calculate CRR
CRR = (CE - CN)/CS x 100
CE = Number of customers at the end of time period
CN = Number of new customers acquired during the time period
CS = Number of customers at start of time period
So, if you had 1,000 customers at the start of a given month, gained 100 new ones during it, and ended that same month with 1,050 customers, your CRR would be:
(1,050 - 100)/1,000 x 100 = 95%
A higher CRR indicates you are retaining a greater proportion of your customer base.
How to Optimize for CRR
The following five tips can kick-start your customer retention rate:
- Offer loyalty programs and incentives with a personalized touch in your messaging.
- Resolve support issues quickly and effectively through multiple contact methods like phone, email, live chat, social media, and text.
- Send educational content regularly to nurture customers. Give as much free value as you can.
- Regularly request feedback to improve the consumer experience.
- Segment customers based on needs and behaviors and tailor your email content to them.
By honing in on retention, you build brand affinity and boost lifetime value.
Customer Lifetime Value (CLV)
CLV helps you quantify customer value beyond a single purchase. It measures the total revenue a customer will generate for your business over their lifetime with your brand.
How to Calculate CLV
CLV = (Average Order Value) x (Purchase Frequency) x (Average Customer Lifetime)
For example, if your:
Average Order Value = $50
Purchase Frequency = 2 sales per year
Average Customer Lifetime = 5 years
Your CLV would be:
$50 x 2 sales x 5 years = $500 CLV
How to Optimize for CLV
Follow these five strategies to increase CLV:
- Create a social media frenzy through customer engagement marketing
(Banzai highlights their top examples)
- Build consistent touch points with your customers to improve retention and lengthen their lifetime with your brand.
- Offer tiered memberships and subscriptions that go past a single point of purchase.
- Incentivize referrals to acquire similar consumers and build promoters of your brand.
- Upsell and cross-sell existing buyers with products that can add value to what they already have.
How to Choose Your Marketing Metrics
Now that we've explored key metrics and digital marketing formulas for assessing marketing performance, how do you decide which ones to focus on? The most important metrics for your business are those that align with your business goals and objectives.
Start by defining your core business goals, such as:
- Increasing brand awareness
- Generating leads
- Boosting customer retention
- Growing revenue
Then, select the metrics that’ll most clearly indicate progress towards each goal.
For example, if your aim is to grow revenue, you’d want to focus on ROI, conversion rate, and customer lifetime value. For brand awareness, you may track reach and share of voice.
Marketing Metrics Are Essential for Your Business
By mastering essential marketing metrics like conversion rate, ROI, customer lifetime value, and churn rate, you gain crucial insights into the customer journey and vital drivers of growth and ROI.
Together, these key performance indicators offer a multidimensional view of marketing success, allowing you to identify opportunities, eliminate wasteful budget spend, and maximize returns from your marketing efforts.
Focus on these vital marketing metrics, align them to your business goals, and you’ll be well-equipped to boost performance across all campaigns and channels.
Frequently Asked Questions About Digital Marketing
What are the four basic metrics in digital marketing?
- Customer Lifetime Value (CLV): It measures the total revenue a customer will generate for your business over their lifetime with your brand.
- Click-Through Rate (CTR): CTR calculates the percentage of users who click on a specific link, like an ad or a call-to-action button. It helps evaluate the effectiveness of your marketing campaigns.
- Conversion Rate: This measures the percentage of visitors who take a desired action, such as making a purchase or signing up for a newsletter.
- Return on Investment (ROI): ROI helps you determine the profitability of your digital marketing efforts by comparing the revenue generated to the costs incurred.
How is math used in digital marketing?
Mathematics plays a pivotal role in digital marketing. It aids in data analysis, campaign optimization, and decision-making.
Marketers use mathematical models to predict customer behavior, allocate budgets efficiently, and measure the impact of various strategies.
Whether it's calculating ROI, analyzing conversion funnels, or determining ad spend, math empowers digital marketers to make informed choices.
How do I set digital KPIs?
Establishing digital KPIs is important to any digital marketing strategy. Successful implementation involves these steps:
- Define Your Goals: Start by identifying your overarching business objectives. What do you want to achieve in your business, and how is your digital marketing strategy going to support it?
- Choose Relevant KPIs: Select KPIs that directly align with your goals. For instance, if brand awareness is your aim, focus on metrics like website traffic and social media engagement.
- Establish Benchmarks: Determine your starting point by collecting historical data. This will serve as a baseline for measuring progress.
- Implement Tracking Tools: Utilize analytics tools such as Google Analytics, social media insights, email marketing platforms, and webinar platforms like Demio to track and measure your chosen KPIs.
- Regularly Monitor and Adjust: Continuously monitor your KPIs and be ready to adjust your strategies as needed to improve performance.
By following this formula, you can craft digital KPIs that guide your digital marketing efforts effectively and help you achieve your business objectives.