What is ROI - Definition
ROI (return on investment) - is an indicator used to measure the return on the initial investment. It is commonly used to calculate the net profit of online marketing campaigns. With this indicator, you are able to quickly determine whether your advertising costs are paying off and impact your sales growth and if so, to what extent.
How to calculate ROI metric?
Divide the initial cost of the campaign by the total amount of products sold through the campaign.
For example, you sold products through a campaign for an amount of 1000. You spent 100 on the campaign.
Calculation: $1000 - $100 = $900
The return on investment is $900
That is a basic ROI calculation of a particular investment.
Why is ROI important?
Calculating return on investment (ROI) is important to help companies understand the direct effect of investments. It is a helpful resource for evaluating past business decisions. Calculating ROI percentage can also help you compare existing opportunities and help you choose the next steps to take. If your investment is less than profitable to cover your expenses, it may suggest that you need to try something new.
What is a good ROI?
There is no single number that determines how good your return on investment is for the net income of your business. One thing is most important, the better the ROI, the better it is for you, your business, and its finances. Measure the return on all your investments and see which ones have the biggest effect.
For example, you can invest $1,000 each in Google Ads and Facebook Ads and you do the ROI calculations for each channel separately to see which ads are generating more net profits so that you can invest even more in them and earn even more. The negative ROI figure is when there's a bigger total cost of the marketing campaign than what you get back from it.