How to Calculate Marketing ROI?

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To calculate the return on investment in marketing, it is important to consider multiple variables on both the profit and investment side. To do this, we recommend that you define your marketing plan as a first step .

Understanding the ROI formula is essential to knowing the results of your marketing investments.

It is important to determine what fronk oil email list constitutes your return and what your actual investment is . For example, you might consider the following for return:

Total revenue generated for a campaign (or gross revenue, which is the sales generated by the campaign).
Gross profit or an estimate of gross profit (revenue less cost of goods to produce/deliver a product or service).
Net profit (which is gross profit less expenses).
On the investment side, it's easy to consider media costs as investment. But what other costs should be included ? To run your campaign, you may need to:

Creativity costs.
Printing costs.
Technical costs (email platforms, website coding, etc.)
Management time.
The cost of sales.
Formulas to calculate ROI in marketing
Some formulas to calculate ROI in marketing are:

A basic formula uses the gross profit from units sold in the campaign and the marketing investment for the campaign:

gross profit – marketing investment / marketing investment

You can also use customer lifetime value (CLV) instead of gross profit. CLV is a measure of the profit generated by a single customer or set of customers over their lifetime with your company.

customer lifetime value – marketing spend / marketing investment

However, some companies deduct other expenses and use a formula like this:

profit – marketing investment – ​​overhead allocation – incremental expenses / marketing investment

These expenses are typically recorded as sales and overhead, but some companies include them in their ROI calculations to get a closer estimate of the actual profit their marketing campaigns generate.

While the components of calculating marketing ROI may be different for each organization, this measure allows them to focus on the campaigns that deliver the highest return.

Marketing Oriented Examples
For example, if one campaign generates a 15% ROI while another generates a 50% ROI, which one will you spend your marketing budget on next?

And if your entire marketing budget returns 6% and the stock market returns 12%, the company could make more profit by investing in the stock market.

Moving on to another marketing-oriented example:

If a $1,000 investment in advertising allows you to get $2,500 in sales on your website, this would be your ROI formula:

(2500-1000) / 1000 = 1.5

That is, you would be getting 150% of your advertising investment.

This value is ideal for calculating the effectiveness of a campaign. But the real ROI of the campaign must also be calculated considering the operational cost necessary to obtain that revenue.

For example, if the cost of distributing orders was $200, the ROI is:

(2500-200-1000) / 1000 = 1.3

Calculating ROI is essential for deciding on future investments.

With this information, you will have the information you need to evaluate which projects are most profitable and, consequently, you will have a better idea of ​​what type of actions are best for you.