Understanding which of your marketing channels – paid search, social media, or email – delivers the best return on investment is crucial for sustainable growth. It’s tempting to focus on vanity metrics like clicks or likes, but we need to drill down to profitability. Comparing these channels isn’t always apples-to-apples, so a consistent framework is essential.
The core principle is calculating Return on Ad Spend (ROAS) or, more accurately for email, Return on Marketing Investment (ROMI). This means working out how much revenue each dollar spent generates. However, simply looking at revenue isn’t enough. We need to factor in all costs associated with each channel.
- Full Cost Accounting: Don’t just consider ad spend. For paid search, include agency fees (if applicable), software costs, and the time your team spends managing campaigns. For social, factor in content creation, graphic design, and community management. Email requires platform fees, list maintenance, and copywriting time.
- Attribution Modelling: This is where it gets tricky. Did a customer find you via Google, then convert after receiving an email? Most platforms offer attribution models (first click, last click, linear, time decay). Experiment to find what best reflects your customer journey. Consider using a multi-touch attribution tool if your budget allows.
- Customer Lifetime Value (CLTV): A one-off purchase doesn’t tell the whole story. If a customer acquired through email consistently buys from you over several years, their CLTV is significantly higher than someone who clicked a social ad and bought once. Factor CLTV into your ROMI calculations.
- Profit Margin Matters: Revenue is vanity, profit is sanity. A channel might drive high revenue, but if your profit margin on those sales is low, it’s less valuable. Calculate profitability based on *net* profit, not just gross revenue.
Generally, we see paid search delivering strong, immediate ROI for customers actively searching for your products or services. Social excels at brand awareness and reaching new audiences, often with a longer sales cycle. Email, when done well with a segmented list, consistently provides the highest ROMI due to its low cost and ability to nurture existing customers. However, these are generalisations. Your results will vary.
To truly understand which channel is most profitable for *your* business, start tracking all costs, implement a consistent attribution model, and calculate ROMI based on net profit. Regularly review these metrics and adjust your budget accordingly. A quarterly review will help you stay on track and optimise for continued growth.
