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Measuring ROI

Measuring Return On Investment: The Basics

Last week we walked you through the basics of creating a marketing plan. After you create a marketing plan, you have to be able to effectively measure you ROI (return on investment) to decide if the plan is working. Continue reading to learn more about measuring your ROI, and why it's important.

What is ROI?

ROI is a tool used to measure the effectiveness of marketing strategy. This method allows you to measure how well the strategy is working by measuring the amount of revenue created by your investment.

How do I measure my ROI?

To measure your ROI, you will subtract the amount of revenue gained from your investment from the cost of the investment. Then divide this amount by the cost of the investment and multiply by 100 to get your ROI percentage.

Formula for figuring ROI:
ROI= (Profit - Cost)/Cost X 100

Say you spend $20 on Facebook ads for a sale that uses a specific promo code. When your sale is over, you can use that promo code to track and calculate the amount of revenue created by that promo code, let's say $60. To calculate the ROI for you Facebook ad, you would calculate $60 minus $20 to get $40. Then divide $40 by $20 to get 2. Multiply 2 by 100, and that gives you a ROI of 200%.

Why is ROI important?

When you create your marketing strategy and budget, you will want to know that your marketing dollars are going into the right channels. The goal of marketing is to convert new customers and retain previous customers. If you are spending countless dollars on newspaper ads, but all of your customers are finding you through socail media, you can adjust your marketing budget to receive a high ROI by investing in your social media.

This is a very simple, basic way to calculate ROI. There are other variables that can be taken into consideration to obtain a more specific ROI. To learn about more advanced forms of calculating ROI, and marketing ROI (MROI) specifically, check out this article from Forbes.

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