What is marketing ROI and how to calculate it?

What is marketing ROI and how to calculate it?

Posted by: 120 Advertising

Whether you own a small local business, or an extended multinational company, it’s always good to measure your ROI; but, what exactly is ROI and why is it so important? The team at 120ADVERTISING is here to share their knowledge, by gathering the most important information you need to know. ROI, is an acronym for Return on Investment, it is a measuring tool used mostly by advertisers, which determines if the advertising campaign of a product has been effective. In simple terms, how much profit did your business make in relation to the initial investment? You can also use ROI to decide which are the most effective ways you should use your budget in order for you to get a return. For example, if you find that a certain campaign is generating a higher ROI than others, you can apply more of your budget to the successful campaign and less money to campaigns that aren’t performing as well. Calculating ROI can be achieved simply by using the following formula: ROI = (Gain from investment – Cost of investment) / Cost of investment % ‘Gain from Investment’ refers to the profits obtained from the sale of the investment of interest, while the ‘Cost of Investment’ includes every single cent spent, not only for the investment itself but also for the fees, the employees that worked for the campaign, etc. Realistically speaking, when most advertisers mention ROI, they actually mean ROAS, or Return on Ad Spend. The undeniable advantage of the ROAS approach is its simplicity, as media managers can often perform the calculation within a few mouse clicks, making the optimisation decision like a breeze. Another important point to mention is that in most instances ROAS is the only and the closest equivalent to ROI available to marketing agencies and freelance marketers, since information on the cost of goods, credit card processing costs, the cost of returned goods and similar isn’t shared with an outsourced agent/agency. Let’s imagine that your PPC efforts resulted in $1,000 worth of sold goods or services, while your PPC campaign cost was $500. Hence, your ROAS would be 100%: ($1000 profit – $500 cost) / $500 cost = 1.0 = 100% Most online bid advertising platforms calculate ROAS and use this metric in bid optimisation algorithms. ROAS is a good place to start before proceeding with calculating ROI. ROI should take a primary role in the planning of a campaign. Before any business is set up, a feasibility plan is considered. The same needs to apply for a campaign, because a campaign cannot be considered successful without measuring the ROI. If your analysis has a negative or even a very low rate of return over an extended period, look for alternatives, in order for your marketing to be successful. Our team advice you to calculate your ROI with consistency; for example you can apply the ROI calculation formula every day, week or month in order to continually optimise and generate the best results for your campaign. This way, you will be able to compare the efficiency and the productiveness of your effort. If you want to learn more on how we can help your business grow, contact our team of infused marketing minds on (+357) 25 340555 or send your message to info@120ADVERTISING.com.