What is ROI in marketing and how is it calculated?
When we execute a digital marketing campaign we must be clear about what ROI is. It is important to plan each action to generate expectations about the profits that we could obtain in relation to the amount of resources that we allocate. ROI allows us to know what the return on investment is.
Of course, it goes without saying that the higher the ratio, the more profitable all the campaigns carried out will offer us. In this article we explain what ROI is and how to calculate ROI, something that should interest you.
What is ROI in digital marketing?
Return on investment or ROI (Return On Investment) the economic value that is produced after carrying out different marketing activities. It allows us to measure and quantify the return obtained after the investment.
We will do it thanks to all kinds of web analytics tools and systems to track.
The importance of ROI in SEO
Before starting an online marketing strategy or an SEO strategy, you have to take into account the ROI concept to know how to measure conversions and their profitability by checking the results.
There is no doubt about the great utility of ROI in assessing the benefits, since it allows us to know and quantify the sales on each euro that we have invested in a campaign. It is very important to calculate it to make good decisions about the cost models of future investments based on more profitable alternatives.
To find out what, among all, brings the greatest benefit or carry out CRO (Conversion Rate Optimization) strategies and improve, we can resort to ROI. Although we must not only pay attention to the economic benefit, but also to the diffusion of the brand.
How to calculate ROI?
This ROI ratio, like any other, needs an equation to be expressed. Let’s see it in its simplest version. The most basic and elementary formula that should be memorized would be the following:
ROI = [(Profit – Total Investment) / Total Investment] x 100
The ROI formula must be multiplied by 100 to obtain a percentage that is its most synthesized common expression. In a more corporate version of the formula internally, tax costs and many other expenses that may be indirectly related to campaigns can also be included.
Any marketing action must consider the calculation of ROI to evaluate profitability, even in each phase of the conversion funnel. But before doing the calculation, we have to know what we want to measure:
- A specific action on a specific product.
- The response of the users of a certain segment.
- The profitability of a very specifically focused campaign.
- The return on advertising investment in a specific area.
By doing so, we will know the profit and the total investment made. You have to know that in the marketing study it is about net profit, or what is the same, total sales minus total costs of the campaigns.
Examples of Return on Investment calculations
Campaign in Google Ads
If we carry out an SEM campaign, we start from a budget of € 1000 and obtain an income of € 2500 in sales, applying the ROI formula, the result of the advertising investment would be equal to 150%. If the cost of order distribution is € 200, the ROI would be 130%, somewhat lower considering this expense.
Campaign on Facebook Ads
If, for example, we run a Facebook Ads campaign and invest € 250 and the profit from the campaign is € 500, applying the ROI formula the result is 100%. This means that we have obtained a 100% return on the investment and that, for every euro we have invested, we have generated two. The ROI will be positive and it will be convenient to invest more in this action.
Investments in marketing to improve conversion rates and profits can be targeted to all kinds of strategies and actions. It is possible to measure the performance and measure the ROI of email marketing campaigns that take the user to a landing page to sell a product. And assess the profitability of hiring a community manager, or writers to write a certain number of monthly entries on our blog. Everything can be measured with tools to evaluate results.
Calculating ROI is essential to be able to make the right decisions regarding future advertising investments. With validated data on the KPIs (Key Performance Indicators) we will have the information necessary to evaluate the alternatives with the highest profitability. Therefore, we can have a clearer idea about what kind of actions to carry out. Testing different types of campaigns will help you get a bigger picture.