Return on Investment (ROI) is a crucial metric in marketing that measures the profitability of a marketing campaign or activity. ROI allows companies to assess how effective their marketing spend is and how much profit they are generating from their investment. It is one of the most important metrics for evaluating the success of marketing activities and making strategic decisions. Discover even more KPI & marketing calculators here.
Meaning: Definition in marketing
ROI refers to the relationship between the profit (or sales) and the costs of a marketing campaign or measure. It shows how much money a company gets back on average for every euro invested. A positive ROI means that the marketing activity generated more profit than it cost. A negative ROI, on the other hand, indicates that the costs exceeded the income.
Calculation: Calculate ROI
Calculating the return on investment is relatively simple. You take the profit of a marketing campaign and subtract the costs from it. Then you divide the result by the cost and multiply it by 100 to express it as a percentage. The formula is:
ROI = ((profit – cost) / cost) * 100
To illustrate, let’s say a marketing campaign cost a total of 5,000 euros and generated an additional profit of 10,000 euros. Then the ROI is:
ROI = ((10,000 – 5,000) / 5,000) * 100 = 100%
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Meaning of the ROI calculation
ROI is a crucial metric for measuring the efficiency of marketing activities. It allows companies to assess which marketing activities are delivering the best results and which should possibly be optimized or stopped. A positive ROI indicates that marketing spend was effective and generated profit. A negative ROI indicates that adjustments need to be made to the marketing strategy to achieve better results.
Example: ROI optimization
An online store wants to improve the ROI of its search engine marketing (SEM) campaign. The total cost of the campaign was 8,000 euros and the additional profit generated by the campaign was 15,000 euros. The current ROI is:
ROI = ((15,000 – 8,000) / 8,000) * 100 = 87.5%
The company decides to optimize the ad texts and keywords in the campaign to reach more relevant target groups. Targeted landing pages are also created to increase the conversion rate. As a result, profit increases to 20,000 euros and ROI improves to:
ROI = ((20,000 – 8,000) / 8,000) * 100 = 150%.
By optimizing the SEM campaign, the online store was able to significantly increase its ROI and increase profit in relation to costs.
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