If companies are to receive their largest return on investment (ROI) from their marketing spend, they need to be spending at least 40% of that budget online, according to new research released.
Survey data compiled by web analytics firm ClickIQ suggests that ROI varies wildly depending on how much is spent in each channel.
Based on the average UK online retail ROI for last year of 51%, they calculated that maximum return would come when 40-50% is spent through websites/Internet advertising. A 50% split between TV and print ads achieved an average ROI of just 32%.
Marketing budgets are changing to reflect this shift in spending
Marketing budgets are changing to reflect this shift in spending. A recent report by the Advertising standards authority shows that marketing budgets have not grown since 2008.
In fact, many companies are looking for ways to cut their marketing budget and allocate money elsewhere. The trade off is that they will need to find new ways to market their product or service without spending as much on it.
“Cutting your marketing budget is like cutting off your legs and discovering why you can’t stand up.”Matthew Dorrington, MD Simple Advertising
This isn’t to say that marketers should be fooled by the distinction between offline and online spending, as Les Binet and Peter Field have argued for a 60/40 approach in brand development and activation spend.
Marketers that do take advantage of the Web and its unique properties can see a higher return on their efforts.
This study which began in 2016, is building a database of 343 typical campaigns that employ effectiveness modelling and collecting new findings about campaign effectiveness. These represent £5 billion worth of advertising spend.
The data collected throughout the size of the advertiser indicates that ROI improves as business turnover increases. An average firm with £50 million more annual revenue receives 40 pence extra income for each £1 spent on advertising.
When looking at the data across categories using size-adjusted ROIs, the same picture emerges. As online’s portion of spending rises, category ROI improves.
Significant changes in online marketing were made in the past few years. Display lost half of its share, falling from 50% of online spend in 2016 to 25% in 2019. Paid search, on the other hand, dropped precipitously, while sponsored social exploded in popularity in 2019.
Traditional media channels, such as TV and print ads, may be more expensive than they’re worth
Traditional media channels, such as TV ads and billboards, are not always the best option for businesses looking to create exposure.
According to a study by Forbes with data from Cision, traditional advertising can cost £3.39 per impression on average in 2020, whereas digital ads only cost £0.20 per impression with an increase of 20% in impressions over 2021.
That means that if you’re spending the same amount of money on both traditional and digital channels (and assuming they generate the same amount of impressions), then your return on investment is 2 times lower when you advertise digitally!
If you’re considering investing in new or different marketing strategies this year, think about how much more bang for your pound you’ll get with digital instead of settling for old traditional methods.
It’s difficult to evaluate the effectiveness of traditional advertising because it is not directly linked with customer actions.
we know from our work with clients that when budgets are tight, assessing the efficacy of these channels in comparison to online channels becomes difficult because their ultimate outcomes – revenue or contact – aren’t directly linked with consumer activities.
This means marketers need to take a different approach: by focusing on results over inputs and shifting away from measuring the number and size of TV campaigns, for instance; toward evaluating how those campaigns generated actual contacts and sales across all marketing touchpoints.
Online marketing gives marketers a lot of flexibility with their budgets
Online marketing has many angle from Search Engine Optimisation to Paid Advertising and Social media management. Areas such as social media can be done in house if you have a dedicated in house team. Those who dont have an in house marketing team will often use a company such as Simple Advertising to carry out these tasks for them.
However, with this variety and ease of use comes a lack of standardisation in measuring the success of online marketing efforts. Each agency has its own way of measuring return on investment. we focus on money in the door.
Without clear standards, marketers are left to hone their own intuition for how much to spend on online ads. But research from Conversion Works suggests that too many are spending too little. Many small business will test online ads with a small budget like £100 when study have shown that platforms such as Facebook or Google don’t give prime placement for budgets lower than £1000.
Further reading: “Why content marketing is key to growing your business online“
It’s important for companies to have a balanced approach that includes both traditional and digital channels
This study adds to the growing evidence that a mixed strategy is necessary with 40% focused on online. So I would always encourage my clients to continue their print, radio and tv advertising but add a way of tracking this. Maybe add a voucher that is unique to that advertising form so you can contribute the sale to that stream.
Marketing now is best done by companies tracking their results and those that can measure the ROI on their marketing will likely see an increase in sales.
Wrapping this up
It’s not surprising that online advertising has a higher return on investment. With the cost of marketing continuing to rise, it makes sense for marketers to explore other avenues in order to get their message out there and connect with potential customers.
If you are looking for assistance in this area, reach out today! We can help you maximise your ROI by creating an effective digital marketing plan that includes social media ads or paid ads.
Find out how we can help your business grow, get in touch through our contact form or give us a call at 01622 801460