What is ROI?
ROI (Return On Investment) is how much you have gained favorably in comparison to the amount spent. The higher the ratio, the greater the return. The calculation of ROI is important as it determines the profitability of expenditure and takes the guesswork out of making business decisions. In simpler terms, it is a calculation for knowing if you are getting your money’s worth.
To help make things easier for you, we’ve put together a visual breakdown of how ROI is calculated with a few examples. The result Is typically calculated as a percentage (%) hence it is multiplied by 100.
The most common formula used to calculate ROI is as follows :
How do we find the total amount spent?
The amount attributed to the total amount spent when calculating your ROI will depend mainly on the area of your business that you wish to focus on. For example, if you wish to calculate your ROI for an online marketing campaign, the total costs will include what you incurred to create and distribute the campaign. This can include payments to the designer, charges for the usage of CRM systems, and payments to run ads. In simple terms, this would equate to all the marketing-related expenses involved in running the campaign.
An example list of the total amount spent on content marketing is given below
1. “Subscription charges” refer to the total amount paid for website maintenance or other hosting charges
2. “Social AD Spend” is the total amount spent on advertisements running on social media.
3. “Content creation” is a general reference given to all the costs incurred towards creating content such as graphics, designing, concept creation, and publishing.
What is my total benefit?
The term “Benefit” can also refer to Profits or Gain depending on the type of Objective the ROI is based on. Your objective would vary based on the particular ROI you wish to calculate. For example, your objective could be identifying the ROI for a social media marketing campaign to improve the sales of your restaurant. In other words “What am I getting out of investing in a social media marketing campaign?”
Your benefit could be calculated by adding the total income which comes from multiple sources. The formula below explains how the total benefit is calculated when measuring the return on investment for social media marketing.
1. “Inquiries” refer to all the customers you have received as a result of them inquiring about further details on your product or service.
2. “AD Leads” refer to customers who have acquired as a result of seeing your ads online.
3. “Sign-ups” refer to the number of customers who have directly registered for your product or service through your website.