The Relativity & Illusion of Digital Marketing ROI

Jan 25, 2019 | Commentary, Strategy

Imagine a city where on the same day two coffee shops open that have very similar menu items from a product and quality perspective. There are no other competing coffee shops or cafes nearby. One of the businesses has invested in a robust digital marketing strategy that includes a website, search engine optimization, listing management, social media and even has a mobile app where people can place orders for pick up later. The other business did not invest in digital efforts. All costs considered, which will have a better ROI after the first year?

If we look at the data, one study from 2015 found that 64 cents of every dollar spent in a store was influenced by the Internet. That figure is probably on the low end and we can be certain that the Internet’s influence is even greater in the service-based industry where consumers are often going online to consult reviews and research various companies. We’re talking about trillions of dollars being spent based on information found online.

64 cents of every dollar spent in a store was influenced by the Internet.

Source: Deloitte

So back to the question. If we use the data above as a guide, then the business that invested in digital marketing will capture at least 64% of the business. If we say that $250,000 was the total revenue of the two businesses combined, the business that embraced digital marketing brought in $90,000 more than the competitor.

Even if the digital-savvy coffee shop spent a lot on marketing that year, let’s say $40,000, they are still left with $50,000 more than the competitor. Now, if we imagine this same scenario, but both companies are engaged in digital marketing, the one with better ROI will be the one that can deliver sophisticated digital marketing at lower cost.

Digital Marketing ROI Is Relative

The example above is meant to simply highlight how ROI is relative to the business, the market, the competition, etc. The real-world is far more competitive and complicated than this illustration. For instance, here’s eight variables that will likely impact the acquisition of new business and therefore the ROI of digital marketing:

  • Cost of marketing services
  • Consumer perceptions and opinions of products, services, customer service and the overall brand
  • Internal business processes, structure and efficiency
  • Number of competitors in the market
  • Level of digital sophistication of each competitor
  • Customer demand in the market
  • Product and service differentiation
  • Location of store (if brick and mortar business)

This is by no means an exhaustive list, but it helps to show that even if you could afford the best, most successful digital marketing agency in the world, there are a host of other factors that are at play. Think about your own experience. How many businesses have you thought looked like a great reputable business, but ended up offering poor service(s) or a low-quality product? Appearances can be deceiving.

To me the biggest variable that small businesses need to be watching is the digital sophistication of competitors. As more and more businesses embrace digital marketing in meaningful ways, it forces the entire competitive network of businesses to elevate to this new standard, or risk giving business away to competitors. In this way, the channels businesses use online can’t be looked at strictly as a growth strategy. The reality today is that digital marketing is a cost of doing business.

This isn’t to say that digital marketing can’t deliver ROI. It can, especially if you run a high quality, differentiated business in a market with high demand. I’ve seen many cases where simply “turning on” effective digital marketing strategies can drive immediate results and significant ROI.

Digital Marketing & Growth Aren’t 1:1

On the other hand, many digital marketing agencies promise significant results and performance, often to their own peril. When these results aren’t met, contracts are ended, and both the agency and the business are back at square one. The problem here is that agencies are saying what businesses want to hear, and businesses aren’t recognizing that their growth isn’t singularly dependent upon digital marketing. This is the illusion of digital marketing ROI.

Agencies and even the businesses that manage their own digital marketing, like to think that digital marketing and growth or new revenue are a 1-to-1 relationship. This simply can’t be the case given the many variables at play. Also, there are plenty of ways to track this performance in order to know for sure.

The reality is good businesses with skilled employees and a good amount of luck are the ones that succeed. The success of any business is accelerated, accentuated and amplified by effective digital marketing and these results are all relative from business to business. Just because you executed a digital marketing strategy doesn’t mean all new revenue can be associated with these efforts. You can attribute some of these results with the right online tracking and analytics, but not everything gets wrapped up in a bow.

Ultimately, the customer is now in control of the entire purchase process. The objective for any small business should be simply to get in the running for a purchase with effective digital marketing. In this way, small businesses can’t afford to ignore digital marketing, or simply abandon it because it didn’t deliver ROI.

In my experience, the main reasons small businesses aren’t satisfied when working with an agency is because the agency is too expensive, the agency doesn’t show the value or results of digital efforts and/or your expectations don’t account for the many variables that impact success. So before you look for an agency, it’s important to have realistic expectations of digital marketing ROI and see it more as an investment in the long-term health and success of your business.

For an honest appraisal and discussion about your business’s digital marketing, contact us today.