How To Calculate Advertising ROI With UTM parameters

how to calculate advertising roiThis post covers how to calculate advertising ROI with UTM parameters in conjunction with a CRM and effectively “close the loop” on company’s online advertising spend.

It’s 2016 review time for entrepreneurs and web marketers. It’s the moment to sit down with your team and review your online ad spend. Now you have to consider whether the company’s online advertising budget for 2017 should be even larger or reallocated.

You likely won’t escape that meeting without having to answer the question everyone wants to know from their online marketing team, “What was the ROI on your 2016 online ad dollars?”

How to Calculate Advertising ROI With UTM parameters

Answering the seemingly simple question how to calculate online advertising ROI requires answering two underlying questions:

  1. Cost: What was your overall ad spend?
  2. Revenue: How much value was generated attributable to that ad spend?

The first question is, in fact, pretty straightforward. Total up all your company’s ad spend across all channels for the relevant time period, and you’re done. The second question, how much value was generated due to that ad spend, however, is surprisingly tough. Given its fundamental importance in the world of online advertising, however, it’s important for any entrepreneur to do accurately.

In this article, we’ll look at how you can use UTM parameters in conjunction with an integrated CRM to effectively “close the loop” on your company’s online advertising spend and determine with precision how much value is directly attributable to your online advertising spend.

Overcoming the Problems Inherent in Lead Attribution

Before we get to how UTMs are the optimal solution to tracking ROI. It’s important to understand the three fundamental problems that confront entrepreneurs. Attempting to “close the loop” and determine ROI on online advertising spend can be tricky.

Problem 1: The “Which Leads” Problem?

If you’re using a platform like Facebook or Google Adwords to advertise through. I believe you’ve noticed that they provide a very convenient tally of how many “conversions” or “leads” they attribute to your company via their platform. Ignoring the obvious financial self-interest these platforms have to over-attribute your customers and revenue to their platform. The more serious problem for any web marketer attempting to calculate ROI is that they do not help you solve the “which leads” problem.

Not all of your customers are of equal value to your company. Unless your company only sells a single product, at a single price point, and there are no repeat clients.

One one hand you have a customer that purchases:

  • High margin goods,
  • One which doesn’t use coupon codes,
  • One which makes larger orders,
  • And finally, one which makes regular repeat orders

Are all types of customers that might be more valuable to your company than the average.

One the other you have:

  • Bargain hunters,
  • People who make small orders,
  • And the ones who make one-time purchases.

Those, of course, are less valuable than your average customer.

But if you’re just relying on Facebook or AdWords to provide you with a daily tally of leads – they themselves attribute to their platform. And you have no ability to differentiate whether your marketing efforts are driving high value or low-value leads.

In sum, the problem with these built-in reporting tools is that they don’t tell you which leads were from which ad channel. These reporting tools only provide you with an overall count. That’s a critical problem of course. Not knowing which leads or customers come from a specific campaign or even whether they are from your online marketing efforts. That means – you can have no idea how to calculate advertising ROI.

Problem 2: The Duplicate Attribution Problem

A second problem that any web marketer must confront when attempting to determine the ROI of his / her advertising campaigns is the “Duplicate Attribution” problem. Facebook, AdWords, your email marketing platform, etc. all want you to allocate more of your ad budget to their advertising platform.  They know that the best way to make that happen is to demonstrate that their platform delivers a high ROI. So most have automatic built-in lead tracking and attribution tools. Unfortunately, these platforms all tend to aggressively attribute leads to themselves.

For example, let’s consider a hypothetical customer who:

  • a) originally clicks your company’s Google AdWords PPC ad,
  • b) then later clicks your Facebook retargeting Ad,
  • c) then makes a first purchase (or submits a lead), and
  • d) then sees a remarketing email and
  • e) then makes a second purchase (or submits a second lead).

If you are relying on your ad platforms to determine customer attribution, that same customer is likely to have been counted not once, not twice, but five times (Adwords -2x, Facebook – 2x, Email Remarketing – 1x).

Obviously, that’s just a single customer, and the customer only made two purchases (or submitted two leads). This is critical in figuring out how to calculate advertising ROI. So counting them 5x is patently absurd. That renders any ROI calculation you make using those numbers critically flawed. To rectify the duplicate attribution problem, you need to know from which ad platform the customer originated from and be able to count one customer as one and/or one sale as one.

Problem 3: The Revenue Attribution Problem

Assuming you can solve the Which Leads and Duplicate Attribution problems, the final hurdle to determining the ROI of your company’s online advertising campaigns is value attribution. That is, you need to know how much value to attribute to each lead.

Unlike the Which Leads and Duplicate Attribution problems, the Revenue Attribution problem is not technological. It’s simply a matter of better understanding the underlying margins associated with certain customer behaviors.

That is to say, solving this issue is simply about sitting down with the company’s CFO and assigning a dollar value to different types of customers, purchases, etc. and then using this formula in your ROI calculations.

How UTM parameters + a CRM Can Close the Loop

If these three problems sound difficult to overcome, don’t be disheartened, there is actually a fairly straightforward solution. The key is to use UTMs coupled with a CRM.

Using UTMs Effectively

A UTM parameter is a series of parameter codes that get automatically appended to the end of a visitor’s URL. It’s based on how they came to visit the website.

When the customer submits a lead or makes a purchase, the UTMs are then submitted as hidden fields along with the lead form or sale. This enables the company to identify on an individualized basis which sales or customers originated from where, rather than using overall anonymized data alone.

landing page URL with UTM parameters appended

Image Source

Caption: Example of landing page URL with UTM parameters appended.

Tip 1: Use Detailed UTM Parameters 

There are 5 universally recognized UTMs (Source, Medium, Campaign, Content, Term). By limiting yourself to these 5 parameters you won’t need to worry about whether your tracking codes will be able to integrate with the lead form, shopping cart or CRM that you attempt to integrate it with.

The 5 UTM parameters and examples

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Caption: The 5 UTM parameters and examples.

Within the limits of those five categories, however, you have the freedom to get as detailed as you’d like. The more detailed the UTM parameters you use the better able you are to parse out specifically which ad campaigns and keywords deliver what ROI.

Tip 2: Use UTM Links On All Inbound Links

UTMs are tracked based on the unique path that that customer takes to visit the landing page. They can tell you where the individual customer came from, what keywords triggered their original click, etc. To be effective, however, they must be appended at the paid media platform so that when the customer reaches your landing page they have clicked on a UTM enabled link.

Therefore, you will need to make sure that any traffic sent from online advertising campaigns to landing pages use links with UTMs. And it’s a good idea to also use links with UTM parameters wherever else you’re able to. This will reduce the number of leads with unknown sources. For example on social media pages and in email newsletters.

Track UTM Parameters Through To Your CRM

To be able to tie a UTM parameter to an individual customer, you need to make sure that your UTM data is not merely anonymously aggregated via an analytics platform like Google Analytics as this just perpetuates the which leads problem. Rather, it’s important that the UTM parameters pass along with the customer data to your CRM on an individualized basis. There are a number of free or nearly free website plugins that will pull UTMs through as hidden fields to the CRM when a customer submits a lead or makes a purchase.

Value / Score Leads or Customers via Your CRM

Once the UTM values have been passed to your CRM along with the customer data, you will be able to determine with absolute precision which leads or customers were generated by which advertising spend. You still need, however, to determine the value of each of those customers in order to calculate your advertising spend ROI. The easiest way to do this is to implement the Revenue Attribution formula. It should be developed in conjunction with your company’s CFO (discussed above) through the CRM. In doing so, you’re able to obtain value reporting relatively easily.

Example of CRM automated lead scoring in base crm

Image Source

Caption: Example of CRM Automated Lead Scoring in Base CRM

Conclusion

As an entrepreneur, every part of your business must be under regular scrutiny to determine the value it brings to your organization. That’s even more true, however, when considering online advertising. Missteps can lead to tens of thousands or even millions of ad budget dollars being spent sub-optimally. So how to calculate advertising ROI can make or brake your business.

This is the time to fully and accurately determine the source and value of individualized leads or customers through the use of UTMs and an integrated CRM. You will be in a far better position to accurately calculate the ROI of your advertising campaigns. Moreover, be better positioned to direct your company on the best ways to allocate its future ad spend.

About the Author

Brad Martin is the CMO of Soar Payments, a high-risk merchant services company based in Houston Texas which specializes in providing payments solutions for eCommerce and other card not present sales businesses. You can read more of Brad’s writing by visiting the company’s Facebook page.

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