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Return On Investment

ROI – What is ROI and How To Calculate It?

ROI is short for Return On Investment. It is one of the most important metrics of digital marketing. We measure the performance of the investment by this means.

Thanks to the widely used, useful and free tools such as Google Analytics; we can access statistical data about campaigns. Thanks to analytical tools, we can analyze the traffic from social networks. We can also analyze the amount of attention the products or services receive. With Google Analytics, we can calculate the time spent by the visitors on the website (Average Session Duration), bounce rates, Pageviews, pages visited within the site, etc. We can measure a lot of things and get a lot of information this way. It is possible to make various calculations with the data we obtain and to further use them to make future decisions. The most important among these calculations is the calculation of the Return On Investment.

Return on Investment (ROI) is the result of the transformation achieved as a result of the performed digital marketing work. It gives the rate of money earned, to money spent. With this calculation, you can see the return rate of your investment with net figures and make plans for future investments.

How to Calculate ROI?

ROI is a percentage value found by dividing profit by cost. The calculation is as it is shown below:

Return On Investment

Example of ROI Calculation:

Let’s work through an example to better understand the calculation of ROI. ROI is calculated by dividing profit by cost. If the Value is above 1 (or 100%), we can say that the advertisement is efficient.

Let’s assume that you make various advertisements on social media and search engines to increase your company’s digital presence and promote your products, and you invest $5 000 per year for advertisements. Let’s assume that your income at the end of the year is $25 000.

ROI =[ (25 000-5 000) / 5 000 ] x 100= 400

According to the calculation, the company has a 400% return on investment. The return on investment calculated thanks to the data obtained from Google allows us to get efficient results.

Let’s go through another example. You are doing an advertising campaign for a product from your brand. Let’s assume that you make 50$ per product, and you spent $1500 on advertising expenditure. When you sell 100 products thanks to this advertisement, how would you calculate the ROI?

ROI = [(50×100-1500)/1500] = 2.33