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.
