ROI: what it is, how and why to calculate Return on Investment [+ free calculator]

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(ROI stands for Return On Investment) is literally the return on investment metric used to know how much the company earned from investments, such as paid media. To calculate the ROI you need to raise the total income, subtract the costs and divide the result by the costs, or (return – costs) / costs


We publish this post to show you what is ROI and how to make a simple calculation that it is one of the most important Digital Marketing metrics.

 

Below you can find an article with the concept, how to calculate, how to put together a report and other explanations.

But if you’re in a hurry now and want a summary, you can watch the video below .

Just do not forget to then go back and read all the contents to know all about ROI 🙂

We always talk here at Digital blog results that for a long time, the results of advertising campaigns were analyzed based on guesswork. The Digital Marketing , however, brought a number of metrics that have made it possible to know precisely to their investment efficiency.

One of the best known of these indicators is the return on investment (or ROI, return on investment of the English abbreviation). As the name suggests, the ROI lets you know how much money the company loses or gains with applications made on different channels.

What is ROI

ROI (return on investment or, in English, return on investment) is an indicator that lets you know how much money the company lost or won with the investments made – can be in paid media, new tools, training and so on.

This way, you can know which investments are worth and how to optimize those who are already working for performem even better.

The metric is important because it allows you to evaluate how certain initiatives contribute to the company’s results. Similarly, based on the ROI you can plan targets based on tangible results and understand it is paying off or not to invest in certain channels.

How to calculate ROI

There is a simple formula to calculate the ROI, consisting of:

ROI calculation

Imagine the gain of your company has been 100 thousand reais and the initial investment was 10 thousand. Using the above formula, we have:

  • ROI = (100000-10000) / 10,000
  • ROI 9 =

In this purely illustrative example, the return on investment was 9 times the initial investment. You can also multiply the result by 100 to get it in percentage – in this case 900% return.

Why is it important to get the ROI?

ROI is an effective indicator when it comes to calculating the return of an application and is suitable to all investments, like those made in marketing campaigns, events, improvements in the company’s infrastructure, among others.

When evaluating your business, investors also will look at the ROI, since it is crucial to know how much you will get to know whether the investment is worth it.

Be alert to this indicator also allows the company to plan your goals based on possible outcomes to achieve, observing the previous results. Can identify also the time it takes to bring investment return.

Keep in mind also that your company should understand what ROI means to her and how the metric influence on your goals. Trace realistic metrics and monitor them constantly.

Read more about ROI in posts:

  • How to get the best return on investment in media buying: 8 proven practices
  • Understanding ROI in People Management

A tip to multiply your ROI: Conversion Optimization

How are the conversion rates of your website? Whether you have answered that they are satisfactory, whether you think they are bad, know that there is always room to improve.

And to improve them based on damning information, you must follow certain precepts of CRO (Conversion Rate Optimization – Optimizing conversion) .

The most immediate benefit of CRO is, as the name implies, optimizing the conversion rate , ie the improvement of a page – or even an entire website – so that it generates more conversions from the same volume of traffic .

But what is the relationship between CRO and ROI? Where the two pieces fit together?

Each day with a page, an ad or Landing Page bad the air is wasted money. Ask the question: “how much you earn in a year to increase its conversion rate by 25%, 50% or 100%?”.

Optimize the conversion of your pages, ads, email campaigns, blog posts, posts on social networks and other Digital Marketing activities means generating more results, which directly impacts the ROI.

Some benefits of CRO and how it can improve the Digital Marketing return on investment in your business are:

  1. Higher profit: not only increases revenue but also gain on investment is higher because it uses the same structure to bring more results;
  2. More money for traffic: combining growth in traffic with CRO is very powerful for businesses. Generating more money to invest in traffic, you get more conversions, it generates more money, you can invest more in traffic and so on;
  3. Greater flexibility to CPCs (cost per click): Generating more conversions and sales, you have more money to pay for visitors with paid ads. So, you have a greater bargaining power in the Google auction, for example. And you can make life difficult for its competitors by raising the value of auctions and making them pay more for CPC, which only increases its distance from its competitors.

How to assemble a report to prove ROI

Imagine that you are the employee of a company or an agency and need to put together a report to present the results of actions and Digital Marketing strategies to the board of your company to a customer.

You could spend hours and hours making a huge report of many pages, removing virtually all the data you can get from Google Analytics .

Still, it is likely that, in time to submit its report, it made little sense, and the board or customers even understand the meaning of all those data shown:

Therefore, we can draw four lessons about riding reports:

  • Data is different information: no use you use all the data you have available if they do not make sense for your company or your client. Leaner reports can also help to deliver more relevant information, but certainly not guarantee the presentation of results metrics. Especially if, at the end of the presentation, the following questions are not answered, “What do I do with it? What are the next steps?”;
  • Reports do not exist just to prove results, but to direct the next steps : the report of the size and the time it takes to be made are not crucial to the relevance of this, and a report of a page that took an hour to get ready can deliver much more information than a 50 that took 8 hours. What really matters is that the report delivered value and importance, meeting the demand of the company or the customer.
  • The report should be focused on your audience and the goals that matter to him, there is no point asking about access if you can not tell how much you sell, or you need to sell more or a higher average ticket. Likes, page views and impressions are important, but are not business metrics.
  • Vanity metrics do not maintain an open company: only branding does not serve to maintain an open company. If you have an excellent branding, but branding does not convert this cash, it can be dangerous for your business.

With these four points, we know a lot about reports. But still needs to know how to make these reports. So apart six steps to build reports that prove ROI.

1. Set the public

The first step is defining the audience. Who am I going to talk about? It is the company’s CEO? She is the marketing director? It is an analyst?

Depending on the audience, you should have a different focus in the report. If you go to the board, for example, show the contribution to business revenue.

2. Define what and why

After setting to who the report, it’s time to define what it will show and that it should serve.

If you can not determine this for each metric shown, is a sign that she should not be there.

3. Set the periodicity

Now it’s time to set the reporting frequency. Generally, something that works is to put more in touch with the data analysts, followed coordinator, followed by the board. That’s because the analyst is in contact with this data almost every day, so it needs to monitor it continuously.

For the coordinator, this contact data can be weekly, so that he can see how far it is the goals and where to strike to get beat them. And, to the board, the ideal is that the report model is or fortnightly or monthly. That is, set the periodicities by hierarchical level.

4. Extracting these metrics

Only now it is that you should think of the tool to extract these metrics. The best known of these is Google Analytics, but there are others that can help:

Other tools that can help are:

5. Assemble a template

Step 5 is to mount a template, because you should not spend hours and hours to assemble a report. This has to be agile, something you fill with ease.

If you need help, try using this monthly report template Digital Marketing DR.

6. Analysis

Below, we list some forms of analysis that can generate insights:

  • Action and reaction: What I did and what I have failed to do that generated result? What I did not do that yielded no result?
  • Correlation: What is the correlation between the campaigns that have worked and those that do not work? At which point I shall return in campaigns that do not work and improve? Based on good experiences, which I have to replicate?
  • Benchmarking: Where am I? What I’m doing is good? Where can I get?

After you do this, you understand where you are, set achievable and measurable goals that are not so far away not to demotivate the team.

And once established goals, Ride a plan of action. That should be the end result of the report. That’s what you need to get: in an action plan.

To find out what the most important metrics to be reported and learn to make a report to prove the value of its shares, be sure to download our free kit How to analyze results and make a Digital Marketing report .

Alternatively, you can beat a free chat and no commitment to one of the Digital Results consultants to find out how the on this link and fill out the form below.




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Post originally published on June 23, 2017. Revised and updated on 27 November 2017.