10 Game changing digital marketing formulas

Digital marketing output goes beyond what you see on media plans, evaluation sheets, or ad platforms.

These only provide basic metrics for you to learn and understand how your campaigns have been doing so far.

As a marketer, it is your responsibility and an opportunity to layer these metrics with your business objective and performance.

Only when you combine the performance of your campaigns with actual business outcomes, it sounds more realistic to the management.

For ex., reporting the performance of an awareness campaign only in the form of CPMs or reach or frequency is basic media reporting.

You have to develop softer KPIs around the campaigns you do. For ex., was there an increase in your branded traffic while doing an awareness campaign, was there an increase in direct traffic, did your new user acquisition funnel swell, did your organic app installs go up, did your sales cycle reduce etc?

There are many ways of reporting the success of the dollars spent on digital marketing.

However only a few in fact very few marketers are able to look at the metrics from a business lens.

And don’t misunderstand me here, by business lens I do not mean sales, or purchases only. By business lens, I also mean if there was any behaviour change you observed that worked to the benefit of your business.

In order to help you, look at digital marketing from a business lens, I am giving you 10 critical Digital marketing formulas for you to consider and make use of frequently in order to become a more efficient and data-driven marketer.

1. Marketing Efficiency Ratio (MER)

The marketing efficiency ratio measures the high-level success of your marketing campaigns: total sales revenue divided by total marketing spend (both from the same time period). It is also known as marketing efficiency rating or blended ROAS.

For example,

If in a given month, you

Spent- ₹1,00,000

Generate Total revenue- 10,00,000

MER= Total revenue/Total spends= 10,00,000/1,00,000=10

2. Average Revenue Per Unit (ARPU)

If you want a macro measurement to give you an overarching figure for your sales performance, ARPU is your go-to. It indicates the profitability of a product or service by comparing revenue generated against units sold. ARPU is useful when comparing against competitors and analyzing the strengths and weaknesses of your business.

Formula: ARPU = MRR (monthly recurring revenue) / number of active users

For example, in a given month, your:

MRR- 10,00,000

Total active users- 5,000

ARPU- 10,00,000/5,000=2000

3. Lifetime Value (LTV)

Lifetime value helps you estimate the revenue a customer will generate over their time with your business. Calculating the ‘worth’ of each customer allows you to better make economic decisions when looking at budgets, profitability and forecasting. The LTV of a customer should always be higher than the CAC. Increasing the LTV of new customers will increase the sustainability and long-term profitability of your business.

Formula: average monthly revenue from each customer ($)/ churn rate*

*The rate you lose customers each month

4. Engagement Rate (ER)

Engagement refers to all the interactions your social media content gets - including likes, comments, shares, reactions and more. In an online world, it’s an important metric to keep track of. It will give you insight into what your audience prefers to see and assists in curating your content for a more engaged following.

Formula: ER = total engagement / total number of followers

For example,

Your total followers - 1,00,000

Total engagement - 3000

ER=3000/1,00,000=0.3 or 3%

5. Click to Open Rate (CTOR)

CTOR calculates how many times the links in your email were clicked versus how many times the email was opened. This metric measures the success of marketing efforts and gives insight into how to generate interest within your target audience.

Formula: (total number of clicks / total number of email opens) x 100

For example,

Total number of clicks on an email: 400

Total opens: 4,000

CTOR = (400/4,000) x 100 = 10%

6. Return on Ad Spends (RoAS)

When discussing models like ROI and effective costs, one cannot choose to neglect the overall revenue that an ad has generated vs the total money that has been spent on that ad. Calculating the ROAS, lets you know how profitable a particular campaign has been for you.

Total Revenue- The total money that a business makes owing to its ads that are run on digital media.

Total Cost- The total cost incurred for running ads on digital media

RoAS = Total Revenue/Total Cost

Similarly,

Total Revenue = ROAS x Total Cost

Total Cost = Total Revenue / ROAS

For instance, if the total amount you spent on running of a particular ad was Rs. 5500 and the total revenue that ad earned you is Rs. 68000, then your ROAS can be calculated as-

= 68000/5500

= 12.36

Then your Revenue on ad spend will be Rs. 12.36.

7. Advertising Cost of Sales (ACOS)

ROAS and ACOS are the two faces of the same coin. They inform you about your campaign’s performance in monetary terms, however in different ways. ACOS typically gives you the percentage of your revenue that was consumed in running your advertisement. This can be done by dividing the total cost by the total revenue.

Total Revenue- The total money that a business makes owing to its ads that are run on digital media

Total Cost- The total cost incurred for running ads on digital media

ACOS = Total Cost/ Total Revenue

Similarly,

Total Cost = ACOS x Total Revenue
Total Revenue = Total Cost / ACOS

For example,
If the total revenue that you earned through an ad campaign is Rs. 87,000, while the total cost that you incurred in running that campaign is Rs. 5500. Then your Average Cost of Sales can be calculated by-
= 5500/87000
= 0.063
Hence, for every Rupee you earn, you spend Rs. 0.063, that’s your Average Cost of Sales.

8. Cost Per Complete View (CPCV)

Whenever you create a video inventory, you want people to watch your video till the end. However practically speaking, very few people will hang in to watch your video till the end.

CPCV tells you how many people watched your video till the end.

CPCV (Cost per complete view) is calculated by: total investment on a video/100% complete views of a video

For example,

For a 1 min video ad on Facebook you;

Spent- ₹1,00,000

100% complete views- 1,000

CPCV=1,00,000/1,000=₹100

9. Churn rate:

Churn rate is a critically important metric for companies whose customers pay on a recurring basis — like SaaS or other subscription-based companies. Regardless of your monthly revenue, if your typical customer doesn't stick around long enough for you to recoup your average customer acquisition cost (CAC), you're in trouble.

Using a CRM can help you determine your customer churn rate. The software you sell may also have a built-in subscriber count that shows you how many users you had at the beginning of a time period and how many users you had at the end.

The churn rate formula is:

(Lost Customers ÷ Total Customers at the Start of Time Period) x 100.

For example, if your business had 250 customers at the beginning of the month and lost 10 customers by the end, you would divide 10 by 250. The answer is 0.04. You then multiply 0.04 by 100, resulting in a 4% monthly churn rate.

10. Abandon Rate

This is the percentage of inbound calls that are cancelled before connecting with a call centre agent or the percentage of abandoned carts in the retail business.

For call centers: Abandon rate = Abandoned calls / Total number of inbound calls × 100%

For retail businesses: Abandon rate = Number of abandoned shopping carts / Total number of initiated transactions × 100%

You can see the positive side of the abandon rate in Google Analytics after setting a conversion goal for the shopping cart page. The best practice is to track the abandon rate depending on industry average values and audience cohorts over time.

That’s it for today, folks!

Hope you will use these formulas to become a better version of the marketer you already are.

We have opened up seats for the next batch A to Z of the digital marketing masterclass where I also give Google and Facebook benchmarks for some of the above formulas as well.

Have an awesome Sunday ahead!

Cheers,

Apurv