The Single Biggest Mistake Small Businesses Make on the Web

In working with small businesses, I’ve come to a conclusion: They like to burn their money.  Most SMBs are wasting their marketing budgets.  They invest in all the right kinds of marketing.  They invest in search marketing, and social media, and buy display advertising in all the right spots.  They target the right demographics. They hire good copywriters.  They’ve got all the elements for success.  The problem is, they don’t know if they’re actually succeeding, because most small business do not track their return on investment (ROI).

Simply put, if you want to measure the effectiveness of any marketing, the only thing you need to track is ROI.  If your ROI is positive, your marketing is working.  If it’s negative, you need to make a change.  Some might think that a negative ROI is the worst thing that could happen to a SMB.  I disagree.  The worst thing that could happen to a SMB is not tracking ROI at all, because if you don’t track ROI, how can you know what’s working and what’s not?  Then, whatever is not working, will continue to cost you money with no benefit and you won’t realize it until you’ve already spent too much money.

SMBs generally have very small marketing budgets compared to big business.  As such, if they’re to compete, then they need to make sure that every dollar of that budget is being spent as effectively as possible.  The small business doesn’t have the luxury of buying media space and running 30 second spots in primetime on the prayer that it’ll make the phone ring.  The primary concern of every SMB should be, “How do I spent my budget most efficiently?” The only way to answer that question is to track ROI.

There is a misconception that tracking ROI is difficult.  It simply means tracking what kind of revenue each of your marketing efforts is returning to you.  ROI is calculated simply enough as ((value generated)-(investment))/(investment)*100.  This means that you need to track three things:

1. investment: The amount of money being put into a given marketing campaign.  This should be the easiest part.
2. Value generated: The amount of money that was generated that can be tied specifically to that marketing campaign.  In order to accurately track this number, you need the third element of tracking.
3. The conversion funnel: The process by which visitors arrive at your site, and the path they follow until the eventual conversion.  This can be done relatively easily using free tools such as Google Analytics.  I could devote an entire post to ways of doing this, but for now, I suggest playing around with Google Analytics.

Instead of focusing on step-by-steps of how to set up conversion tracking, I want to instead focus on some fundamentals that are often overlooked.

First, you can’t measure ROI, if you haven’t determined what a conversion on the web is for you.  It’s unrealistic to think that for every business on the web, a conversion is a sale.  If your website is meant to make your presence known, and create awareness, and purchases happen in store, measuring your ROI for a web marketing campaign by sales is going to be frustrating.  Instead, define your conversions as the end goal that occurs on the web. Some common examples include newsletter registrations and other sign-ups, requests for estimates, downloads of a brochure or an e-book, or even arrival on a specific page of a website.

Second, remember that at the end of the day, we’re tracking return on investment, and the only way to do this is by using monetary values.  Therefore, whatever you have chosen to define as a conversion, you must assign a monetary value to it. This is often where businesses break down in their conversion tracking process.  How can one assign a monetary value to a free newsletter?  The answer is to rely on estimates and experience.  As the business owner, you and only you, should have some idea of what kind of value certain actions have for you.  If you know that for every 100 newsletter sign-ups, you sell 1 widget for $375, then the revenue associated to each sign-up is 1/100th of the revenue generated by the widget: $3.75.

The more precise your estimates as to the value of each action in your conversion funnel, the more accurate your calculation of ROI will be.  Therefore, the longer you track ROI, the more accurate it will be, because you will be refining your estimates as you go.

To continue our earlier example, we had determined that a newsletter sign-up, our defined conversion was worth $3.75.  However, we have yet to determine exactly what the ROI on this marketing campaign was.  So, let’s assume that you spent $1,000 on this marketing campaign, and it generated 2,000 visits to your site, and that you converted those visits at a rate of 10% for 200 newsletter sign-ups.  I threw a lot of numbers in there, but in reality, we’re only concerned with the beginning and ending numbers: $1,000 spent, and 200 newsletter sign-ups as a result.  Recalling that ROI is ((value generated)-(investment))/(investment)*100, we can calculate our ROI.

Value generated in this instance is 200 newsletter sign-ups at a value of $3.75 each, so 200 x $3.75 = $750 of value generated.  We also know that the investment was $1,000.  Plugging all this into the above formula we get: ((750)-(1000))/(1000)*100=-25

So, the return on investment was -25%.  This marketing campaign resulted in a 25% loss of its initial investment.  While that may not be great news for the business owner, the fact that he knows that this marketing campaign is returning a negative ROI means that he can now take appropriate measures to correct this, either by modifying the marketing campaign, or ditching it for a new strategy.

At the end of the day, what’s important is to know exactly how your marketing budget is being spent, and to determine whether it’s being spent effectively.  Business owners need to think of their marketing as an investment if they want to be successful, and as with any investment, what matters is the results.

Do you track ROI on your marketing campaigns?  If so, what techniques do you use to do so?  If not, what’s stopping you?  Let’s chat about it in the comments.