How to Know if Your Digital Marketing is Working

These days, every channel is looking to claim a piece of your sales pie as their own attribution. If you add up the revenue that each marketing platform is suggesting it contributed, you’ll have about 2-3 pies.

When looking at reports from each of the channels, conversion numbers can become very inflated. This can make it hard to understand how your marketing is contributing to your bottom line.

In this guide, I look at a formula you can use to determine how your overall digital spend is performing towards your eCommerce sales or lead generation and decipher whether it is of value to you.

Key Takeaways:

• Get away from the data inconsistencies between marketing platforms trying to claim all your sales.

• Use this formula to understand whether your digital media spend is driving a profitable return.

• Simple table to use to track performance and understand which levers pulled have actually contributed to performance.

• Be able to confidently develop a target cost per acquisition that is relevant to your business.

• Formula does not take into account the benefit of non-paid marketing spend or activities (e.g. word of mouth). It does however equate total marketing spend (media + management) against return.

• This formula will also assist you to generate a target CPA that is relevant for your business. 

Avoid platform data inconsistencies with this simple formula.

As cookies are left behind and each platform wants to claim a larger piece of your pie, it’s getting harder to understand what has actually moved the needle.

By focusing only on the data captured in your online store, you will be able to determine overall marketing performance based on actual true data where 1 = 1 (no more double counting!).

So, here it is … 

The formula: 

(( Digital Spend [Media + Management Fees] ) / New Customers) / AOV

Setting a target CPA based on percentage of AOV.

So, let’s say you spent $10,000 last month. $2k on SEO Management, $4k on each of Google and Facebook Ads (including management fees) on new customer advertising.

And let’s stay your online store saw 250 new customers, who spent an average of $100.

Using the above formula, you will get ->

($10,000 / 250 orders) / $100 AOV = 0.4. Or, your customer acquisition cost is 40% of your average order value. In this instance, that would be $40.

Determine whether your CPA/AOV is profitable or not.

This is where it gets unique to each business. You need to determine whether that figure - $40 - is profitable for your business, either at a first or repeat purchase level. 

If you’re the type of business that generates mostly one-time customers, then you’ll need that figure to be a profitable one. If your business generates repeat customers, you may be more willing to pay a price to acquire new customers.

Here’s a simple table I use to track this.

Below is an example of a monthly / quarterly track of performance. It is very basic, and at a high level just shows us the most important details to understand how any marketing campaigns have affected overall performance.

CAC	July	August	September	Q1 / Q3	October
New Customers	109	124	107	340	115
Spend	$5.2k	$2k	$4.7k	$11,900	$3977
nCPA	$48	$16	$44	$35	$35
nAOV	$59.83	$66.92	$59.34	$62.03	$68
Margin	$12	$50.92	$15.34	$27	$33

What about re-orders? Does that affect your CPA/AOV?

Now, what’s your reorder percentage? Most brands sit somewhere between 10-35%. 35% is the tops and 10% is the bottoms (sorry, couldn’t help myself).

Let’s work with a number nicely in the middle - let’s say 25%.

If your customer acquisition cost is 40% of your AOV, then you can assume that 25% of those orders reorder again with an AOV. For the purpose of this exercise, let’s call that AOV $150 (your return customer AOV) however you’ll want to update this for ‘return AOV’ instead of ‘new AOV’. 

So, you’ve acquired 250 customers, but let’s say you’ve acquired 312 orders. 250 of these orders at a $100 AOV and 62 orders (reorders) of them are at a $150 AOV.

So, (250*100 = $25k) + (62*150 = $9,300) = $34,300 is what you generated from $10k of advertising. That means you had a 343% ROAS, or made $3.43 from each dollar spent. 

So, on average you’ve spent $40 to acquire a customer. Your ROAS on this is 343%, meaning you’ve made $137.2 ($40 * 3.43) for each $40 spent on marketing.

Let’s assume that includes all overheads and you sell at a 50% margin. That means your profit on $137.2 is $68.60. But, you spent $40 to get that $68.60, so your profit after marketing is $28.60.

Let’s assume you don’t get any re-orders. Your AOV is $100 (as above), which will provide you with $50 profit at your margin (above). Given your CPA is $40, you’re going to walk away with $10 profit on the original order.

You can take this further down the track to understand lifetime value (LTV), however for the purpose of this exercise we are trying to determine the new customer acquisition and associated return from your advertising spend. LTV brings in so many other factors over the lifetime of a customer (market changes, other advertising spend, other marketing activities) that we can’t attribute to the initial media spend.

Use your CPA/AOV to track digital media spend.

To use this in your digital media performance tracking, you’ll want to make sure you set a target AOV% CPA and ensure your ads stay within it. Depending on how much you spend, you’ll want to track this on a rolling weekly, fortnightly or monthly basis and determine ad success by this metric. Essentially, the more you spend, the higher your tracking cadence should be.

And there you have it! This formula will save you from the data inconsistencies you’ll find in all the different marketing platforms and give you a clear look at true data that you can actually see in your bottom line. It will help you to understand how each channel actually impacts your performance, rather than relying on them telling you how.

This guide is written by Hedgehog, a done with you digital marketing consultancy specialising in small and medium businesses in Australia. We offer digital marketing consulting, coaching, and training to help SMBs in-house their digital marketing growth.