Simply put, return-on-investment (ROI) refers to what is returned in profit as a result of any given investment.  When applied to web marketing, ROI typically refers to the profits generated as a result of your marketing investment.  Within the larger marketing profession, web marketing has been growing in popularity since its introduction in the late 1990’s because of its very precise measurability.

Unlike outdoor advertising (i.e. billboards) or radio and television ads, where precise correlations to ROI can be elusive, search engine marketing (SEM) enables marketers to track interactions and behavior at every step of engagement.

Though a huge number of web marketing professionals employ display advertising on sites like NYTimes.com or FOXNews.com or Yahoo!, a growing share of marketing dollars are being directed to the search engines and specifically pay-per-click (PPC) campaigns.  By buying the “Sponsored Links” you see on search result pages on Google, Yahoo Search or Microsoft Live Search, marketers are able to track: (a) clicks on an ad link; (b) arrival at a website’s landing page; (c) what visitors do once on the site; and (d) whether or not that visitor converts to a paying customer, among many other possibilities.

Such tracking is typically achieved by using a third-party analytics package in your website.  Such packages range from free and easy-to-install (i.e., Google Analytics) to quite complex and powerful systems that are very expensive and time-consuming to implement.  If you’re a small or growing business, Google Analytics is a great tracking package that will give you much of what you need and is very easy to implement simply by following their detailed instructions.

Once a visitor converts to a paying customer, web marketers are able to do an ROI analysis on that particular individual and across all customers who similarly converted to paying customers from the same campaign.  By comparing the total amount spent to acquire customers through a web marketing campaign to the amount of revenue generated by those who clicked on links and converted to paying customers, a campaign ROI can be quickly calculated.

Obviously, most web marketers want to make at least one more dollar than it cost to execute the campaign.  And, there are some instances where web marketers will make well-calculated decisions to arrive at a negative ROI in order to achieve their campaign objectives (for instance, you might decide that acquiring a large volume of new traffic within a tight timeframe, even if there is a negative ROI, is the right long-term strategy for your site).  But ideally, campaigns will perform much better than either of these scenarios and the degree to which a campaign’s ROI is impressive or not will have much to do with a number of factors.  These include:

Pay Per Click (PPC) Campaign Management.  Achieving excellent placement in the Sponsored Links sections of search results pages is a holy grail of search marketers.  There are a number of factors that ensure a PPC campaign is well managed and optimized for the best outcomes.  These include keyword lists, bid management, geo-targeting choices, product pricing and promotion decisions, etc.

Search Engine Optimization (SEO).  While it is important to actively and accurately manage paid search campaigns, it is equally as important to ensure websites rank high in natural (or organic) search results.  Clicks on these links are free to the advertiser and can effectively lower the overall cost of a web marketing campaign when averaged with paid customer acquisition.  By effectively optimizing a website for search engines, web marketers can ensure the same paid links appear high up in natural (and therefore free) search results.

Landing Page Optimization (LPO).  Clicks from both paid and natural search results must resolve to a web page that is optimized for converting first-time or returning visitors into paying customers, which is why LPO is of such great importance to search marketing.  And, LPO is also concerned with keeping the sales cycle as short as possible.  There are both simple and sophisticated ways to manage how such pages are optimized—either dynamically or in limited tests.  Landing pages can be the homepage of a website, but more experienced web marketers will typically create a specialized landing page that ties directly to the links that generated the clicks in the first place.

Anyone interested in embarking on a web marketing campaign should do so with a measurement plan in mind.  Being able to justify the time and expense of such efforts is critical in understanding the best ways in which to attract and profitably retain customers.

So time for a Small Plug: our Yield Web Marketing Suite is a fully automated and fully integrated set of powerful modules to enable you to easily set up and manage your web marketing efforts.  And to effectively measure the ROI on your efforts.  It’s ideal for small businesses and those with limited marketing resources.  Even more sophisticated web marketers use Yield Software to make the management and tracking of campaigns fast, easy and profitable.

For more information about our Yield Web Marketing Suite, go here.

To see more blog posts in our Introduction to Web Marketing Series, go here.