ROI

ROI (return on investment) is one of the most important metrics in online marketing. That's because it indicates the return on investments made in a project. It helps marketers evaluate which projects are most profitable for the company and which ones need to be optimized or closed.

It helps to see weaknesses at an early stage and avoid serious losses that are typical for wrong strategies that take a long time to implement. Let's take a look at what ROI means for a business, how to calculate it, and how to evaluate the result.

ROI: Marketing Concept

ROI reflects how successful and profitable a business project is. This financial indicator can be calculated for advertising as well, but in this case, it is called ROMI (return on marketing investment).

ROI is calculated to:

• find out whether it makes sense to invest in a particular project, whether such an idea pays off, or whether it is worth spending the company's funds in a more promising direction;
• understand how quickly the investment will be returned and if the company is ready to wait for some time to finally start making a profit from the project;
• determine the break-even point of the project to plan growth points;
• analyze the effectiveness of various marketing channels to promote the product so as not to waste the advertising budget;
• assess how the company's profit level will change depending on a specific increase in investment.

How to Calculate ROI: Formula, Excel, or Online 

Of course, the easiest way to calculate the return on investment is with a special calculator. Yespo CDP has a free online ROI calculator that will perform all the necessary actions in a few seconds. All you need to do is insert the necessary indicators in the appropriate fields and click the "Calculate" button.

Where to get data to calculate ROI? Use Google Analytics or your CRM system if you have it. You can also calculate ROI in Excel spreadsheets. Moreover, you can store all the indicators you obtain there for further analytics. For automatic calculations in Excel, you need to enter a formula and set up the calculations.

To calculate the ROI of a business manually, use the following formula:

The ROMI formula in marketing will be similar, but instead of expenses and total investment amount, you need to substitute the amount of the spent marketing budget. Instead of income from the investment project, use the income that was received during the advertising campaign.

How to Analyze ROI

Since the return on investment is measured as a percentage, the results should be evaluated as follows:

• a result of 0% indicates the break-even of the project, this is the so-called operating zero;
• a result above 0% indicates the payback of investments made in the business;
• a result below 0% indicates that the investment in the project was not justified, you are dealing with an operating loss.

ROI Calculation Examples

To help you understand how to calculate ROI manually and analyze the results, let's take a look at a few examples.

Let's assume that the company's monthly income from furniture sales amounted to $20,000$. According to the balance sheet, the expenditure part of the project for the same month was as follows:

• furniture production expenses – $5000;
• warehouse and store rent – $2000;
• sales managers salary – $500;
• advertising on social media and SMM expenses – $500.

Based on these data, you need to find the total amount of investment in the project, which is 5000 + 2000 + 500 + 500 = 8000. The net investment amounted to $8000, with an income of $20,000. The only thing left to do is to calculate the required coefficient using the method we know:

ROI = (20 000 – 8000) / 8000 х 100% = 150%

In our example, the percentage of return on investment in the project indicates its profitability. So, the company is moving in the right direction, and this marketing strategy should be continued.

Here is another example. Let's say a company sells an online course. In a month, it managed to attract only three customers and make a profit of $1500. Expenses in the current period were as follows:

• all company employees salary – $7000;
• course advertising in Google Ads – $2000;
• payment for technical support of the course – $500;
• office rental for the sales department – $500.

The total cost of the project is $10,000. Let`s calculate the ROI for this project:

ROI = (1500 – 10 000) / 10 000 х 100% = –85%.

The resulting indicator shows the lack of profitability of the project, and the company may suffer losses. However, in a particular case, the success of a business idea should be assessed in the long run. Suppose that with the growth of the company's recognition, the course sales began to increase, and thus, the income received increased. Over the year, the business gained momentum, and the ROI changed to positive.

In niches where the conclusion of a transaction is extended over time, ROI and ROMI should be analyzed not only during the reporting period but also after several months (the exact period depends on the specifics of the business). These include real estate, sales of expensive goods, SaaS, etc., where customers take a long time to make decisions.

That is why marketers advise using the ROI model along with other marketing metrics. It makes it easier to understand how the company is doing.

Deep analytics will help you better understand all the needs and challenges of marketing and show you where you need to improve your strategy to drive sales growth. At Yespo, we know how to help businesses so that investments in the project really start to pay off and bring a decent profit.

The functionality of our omnichannel CDP allows you to automate marketing and increase the return on customer acquisition and retention strategies, which will definitely affect the company's revenue. Collecting customer data, deep database segmentation, omnichannel campaigns, and setting up product recommendations on the website are just some of the features we can offer you to improve ROI and ROMI. To stop doubting, order a demo, and our experts will show you what opportunities you can open up for your business with Yespo.