ROI In The Digital World

ROI in the digital world

How the different digital marketing channels compare on ROI

Digital marketing has brought us many innovations. However, more than anything, it has allowed us to accurately track our efforts and the results they bring. This has brought a whole new level of transparency to marketing and sales as companies embrace online sales. However, even in the online landscape, there are large differences between channels. This is especially true when it comes to ROI and how it is achieved. So how do the different digital marketing channels compare on ROI? And how do these differences affect the ideal marketing mix for your online campaigns?


CPM – The Media Model

CPM or cost per mille (the Italian word for 1000) is a model where you pay for every 1000 times your ad shows on a website (1000 impressions). As such, it is a classic media model where you pay solely for visibility. It is a model used by many media properties, from classic online magazines to Facebook. The targeting available on such platforms vary a lot, which can lead to problems as impressions on non-related websites and pages can easily become an expensive adventure.

With payment by impressions, you pay for ads completely independently of how many people actually click through to your website or buy your product. This means you have to monitor your campaigns very carefully you also need ongoing optimization, to ensure that you are getting the results you want. Getting to the desired ROI becomes the main focus of any sales focused campaign, and it is normally an ongoing process to reach and maintain. As the price of impressions is the cost you work with, you need to optimize both how many clicks you get and how these well convert. This is needed to get to your target ROI and scale. In many cases, you will be hard pressed to reach the ROI, leading to underperforming campaigns with low or negative ROI. Even when you hit your ROI, scaling the campaign easily becomes problematic as the additional volume will again affect ROI. As such, when looking at different digital marketing channel ROI prospects, the CPM model at best requires a lot of work. At worst, it simply does not hit the ROI you need.

digital marketing channel ROI compare

CPC – Interest Becomes a Factor

Another model that has seen widespread adaptation is the CPC or Cost-Per-Click model. In this model, you do not pay every time your ad shows. Rather, you pay every time there is a click on your ad, sending traffic to your landing page. This has several advantages over the CPM model. As you are only paying for clicks, you are less vulnerable to your ads showing on irrelevant pages (less vulnerable only). You are only paying for people who actually had enough of an interest to click your ad.

Of course, there is still a cost to be paid for that click, which will often depend on your ad’s performance. As such, there is optimization to be done to ensure the cost per click is as low as possible. However, the main optimization here becomes your onsite conversion. In order to reach your target ROI, you need to make sure that the cost of your clicks, and the amount of clicks needed for a sale, fall within the acceptable range for you. This means you need to convert enough of your visitors to reach your target ROI. However, at no point during this process are you ensured to hit your target ROI. This will be an ongoing struggle and one you often will not win.


CPA – A Sellers Dream

By looking at the different digital marketing channel ROI outlined in the above, one thing is clear: You are never ensured to reach your target ROI. Instead, you will to trying to reach it on an ongoing basis. However, you will often not be able to do so on a single sale. In fact, you will often need to consider the costs as customer acquisition and hold them against the customer lifetime value, rather than simply the value of the sale.

However, one model takes the above logic and turns it on its head. That is the affiliate model. In the two traditional models outlined above, the media sets the price and you can choose to accept it. You then fight to reach your target ROI. In the affiliate model, it works completely opposite. In this model, you set your ROI in the form of the commission you are willing to pay for a sale. As such, you are in complete control of your ROI. Different types of media partners can then choose whether to accept this offer and promote you.

This reversal in cost control has huge ramifications. First of all means you set your own ROI. But it also means that the targeting of your offer on media platforms becomes the responsibility of the media. They will in turn work to optimize how well the offer works in order to drive sales. It also means that if a given media placement does not bring sales, you will not be paying anything for that promotional slot. It is basically free. Which is another reason media owners will want to focus on optimizing their placements of your program.

different digital marketing channel ROI

So how does different digital marketing channel ROI compare?

As per the above, when looking at how different digital marketing channel ROI compares, one thing stands out. The affiliate channel is the only channel that lets you set your ROI yourself. In comparison, both CPM and CPC channels require you to constantly optimize in order to get anywhere close to your target ROI.

Even with all of this optimization work, it is a constant struggle to reach the target ROI and scale it. Often, costs will have to be consider in relation to lifetime value rather than transaction value.

The affiliate channels differ widely from this. Here, you set your target ROI yourself on transaction level. This gives you unprecedented control over your ROI and thus over the profitability of the channel. Meanwhile, the affiliate channel will also greatly benefit from the many optimizations necessary to get a decent ROI in CPM and CPC channels. It is just not dependent on them in the same way. This is a natural result of only paying for sales.

As such, on a direct ROI comparison, the affiliate channel ROI will beat other online channels 95% of the time. In fact, in many companies, revenue from affiliate sales help pay for search and social campaigns. This also makes sense as there are in fact clear synergies between the channels. For instance, the brand recognition and visibility you drive through other channels will help push more sales in the affiliate channel as well. Combining the channels in this way in fact leads to a healthier and more effective marketing mix. This also because the different channels often exist at different places in the sales funnel. As such, while the affiliate channel has the best ROI by far, it functions even better when combined with the other channels in the marketing mix. But measured on ROI alone, it certainly stands out as the most effective channel available.


Are you looking to add affiliate sales to your marketing mix? Then get in touch with us here at Lodestar Marketing

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