The growth of the digital marketing industry has consistently been 12% to 14%, and that number is only increasing.

But that doesn’t mean you should simply throw money at it. You need to be careful and have a system to manage it properly.

In this article, I’ll walk you through my proven method for accurately forecasting your digital marketing growth over time and choosing the marketing channels best for your brand.

Forecasting Your Marketing Growth

Before we dive in, I want to note that this method applies to any business model.

Though there are other, more specific methods suited to individual channels, the one I’m about to present lends itself well to general business owners and marketers as they make the critical decision of which marketing channels to invest in.

The end goal is to be able to compare different traffic channel sources against each other and select the one that will yield the best return for your business.

Here’s what we’ll look at: sources of traffic, target audience, click-through rate (CTR), conversion rate, number of transactions, value per transaction, cost per transaction and return on ad spend.

When you put these together, you’ll be able to make informed decisions about how to allocate your resources throughout your digital strategy.

Why is that important? Because if you aren’t investing in the channels most likely to yield a profit, you’re leaving money on the table.

This is especially relevant for smaller businesses, which tend to only invest in a few digital channels, according to a study of 300 marketers done by my company in 2019. In this case, it’s critical that they’re choosing the channels that will work best for their businesses.

Let’s take a deeper look at the process.

1. Determine a source.

Your first job is to identify the traffic source you want to evaluate. Keep in mind you’ll be repeating this process on each source you plan to use.

For example, you could choose a source like Facebook or LinkedIn, paid search on Google Ads, or email marketing.

2. Build your model.

After you’ve chosen a source, you need to determine how many conversions can be attributed to that source.

To do that, we build a model that looks like this:

Audience size (the number of people you’re targeting) × click-through rate (the number of people clicking on your search result, ad, email, social post, etc.) × conversion rate (the number of people taking the desired action on your site) = number of conversions

Let’s say your audience size of this channel is 150,000, while your click-through rate is 10%, and your conversion rate is 5%.

Using the model above, your total conversions would be 750.

3. Forecast the value of the source.

Now that we have an accurate idea of the number of conversions our source is bringing in, we’ll want to determine what the future value of that source may be.

How do we do that? We run another equation, of course:

Number of conversions × conversion value to the business (generally the lifetime value of the customer) = value

Now, you’re probably wondering how to determine the conversion value. Don’t worry; I have you covered there, too, but it will require a little more math.

To find the conversion value, you’ll need to look at how much revenue each lead is generating.

So, if you see $5,000 in revenue from every five leads, your revenue per lead would be $1,000.

If we plug that into our formula, this is what we’ll get: 750 × $1,000 = $750,000.

That means your forecasted value for this source is $750,000.

4. Determine the ROAS.

Your return on ad spend (ROAS) tells you how much you’re earning versus how much you’re spending on an ad.

Finding it, of course, requires another formula:

Total revenue earned × amount spent = ROAS

If you spent $2,000 on ads and earned $6,000, your ROAS would be $3,000.

Determining this will help you understand how well your investment is paying off, and, ultimately, if this is a source worth pursuing.

5. Compare your sources.

Now, you want to go back to the beginning and repeat this process on each of your marketing sources.

Run all the equations, and collect all your information in a centrally located document.

You should begin to see some clear winners here that produce the highest conversion value and, most importantly, the highest ROAS.

6. Start to scale.

Good news: The math is over (for now).

At this point, you’ve run the numbers and should have an informed grasp on which channel source is producing the highest returns.

This is the advertising method you want to focus on and invest the most in going forward. The others you will want to refine so you can get better models in place before scaling.

7. Diversify your sources.

Here’s the thing: You don’t want to allocate all your funds to your top player.

After all, digital marketing changes all the time, and to make sure you’re prepared for any unforeseen disruptions, you’ll want to diversify your strategy and the channels you use.

I recommend investing in four to six channels and never allocating more than 30% of your budget into one.

Keep the majority going toward your top channel, but back it up by investing those profits in supporting channels.

8. Always be optimizing.

Quite simply, you should always be optimizing. Doing so will allow you to continue to increase your ROAS and bring your costs down.

What should you optimize? Everything.

Test new ads, landing pages, conversion funnels and everything in between. If you find something that works better than what you’re currently using, chances are that will translate to more efficiency and profitability.

Conclusion 

Simply put, this method results in growth.

It’s a by-the-numbers approach to marketing, and it works. Run it on all your existing sources, and continue to run it every few months to ensure you’re still on the right track.

Source: www.forbes.com