ROI (Return On Investment)

ROI, or return on investment, is a financial metric used to measure the effectiveness of an investment relative to its cost. We can calculate ROI using the simple formula: (profit-investment)/investment. Let’s assume you earned $7,000 from a $1,000 investment. Your ROI would be (7,000-1,000)/1,000 or 0.6, i.e.60%. ROI can be used to look at the profitability of a particular project and tell you how well or poorly an individual ad or a particular campaign has performed. 

What is ROI in marketing?

In marketing, we need to measure the ROI of our spending on different campaigns. This tells us how well or how poorly an individual ad or a particular campaign has performed. We can calculate ROI for our content marketing, email marketing, and even influencer marketing campaigns. ROI lets us see what is working in terms of generating leads and sales revenue and what isn’t. It helps us separate the strong ads from the weak ones so that we can drop the campaigns that are not working and concentrate on the ones that are generating revenues and profits.

Let us assume that a company spends $1,000 on a PPC marketing initiative. They get eight clicks and six orders in return. They feel that they will earn $2,000 from each customer. The ROI can be calculated as:

[((8 x 0.75 x $2,000) – $1,000) ÷ $1,000] x 100 = 1100%

This means that customer retention rate is an important factor for increasing ROI. You have to collect the following information before you can begin to calculate the ROI:

  1. Number of leads: They are the people interested in a product
  2. Lead-to-customer rate: Percentage of people that purchase the product.
  3. Average sales price: This is the cost of the product minus discounts.
  4. Cost of ad spend: This is the cost incurred to create and publish the ads.

How to Calculate ROI?

There are two ways to calculate ROI. We can calculate ROI using any one of the following formulas, depending on the situation at hand:

ROI = (Net Profit / Cost of Investment) x 100 

The answer is expressed as a percentage. You can take the figure of Net Profit from your company’s income statement, also called the Profit and Loss Account. 

ROI on investment can be calculated by using the following formula:

ROI = (Present Value-Cost of Investment/ Cost of Investment) x 100

Return on Investment is usually calculated as a percentage. If you invested $3,000 last year in shares of a company and sold it yesterday for $3,300, your ROI on this investment would be:

ROI= ($3,300-3,000/ $3,000) x 100 = $300/3,000 x 100 = 10%. Since ROI is calculated as a percentage, you could compare this against other investments to see which transaction gives a higher yield.

When you look at the advertising and marketing industry, you will see that an ROI ratio of 5:1 is the average return here. In very exceptional cases, you may find that there is an ROI of 10%. This is the best that can be achieved. On the other hand, an ROI ratio of 2:1 means that you have not recovered from your investment and should abandon the project and start another one. 

Average ROI in Affiliate Marketing 

You should calculate the return on your affiliate marketing programs so that you can see whether they are generating a good rate of profit or not. The ROI would be given by the formula: 

ROI = (Affiliate marketing revenue- affiliate marketing costs)/ affiliate marketing costs x 100 

If you are earning $1,000 from your affiliate marketing program and paying out a commission of 10%, you should deduct $100 from this revenue, meaning that you are earning a net of $900. If you divide this by your affiliate marketing costs, you will get $900/$1,000 or 0.9. Multiplying this by 100 will give us a percentage return of 90 percent. 

You should also look at the following measures when measuring the effectiveness of your affiliate marketing program. The Average Order Value shows the quality of the traffic coming in. You also have to see the Return on Ad Spend, the Cost per Acquisition, and the Click Through Rate. 

The average ROI per order is $15 per dollar spent, which translates to a return of 1400%. The global value of the affiliate marketing industry is $17 billion, and it is growing at the rate of 10 percent every year. 

Case Studies with Clickadu

There are some interesting case studies on the Clickadu site.

One of the cases related to the dating site Dating SweetMeet Android. It is a popular dating site using Zeydoo as an affiliate network. This site was used by blogger Dima to earn an ROI of 32%. It was a push-style ad with the advertising site ClickAdu. The total spend was $1,060.62 while the earning was $1,399.32. This gives an ROI of 32% which is a good return.

How to Increase Your ROI

There are many ways to increase your ROI. You may use any of the following strategies to improve your return percentages:

1. Connect with your customer base

One of the best ways in which you can improve your return percentages is to have a deeper understanding of your customers. You must know about the intricacies of their behavior and what makes them click on a site. This will increase the likelihood of them connecting with you online. Take time to understand their pain and pleasure points and also create different buyer personas at different stages of the process. You can conduct market research and create targeted campaigns keeping in mind your targeted audience.

2. Use the power of analytics

There are many SEO tools and programs that can be used to make a detailed analysis of the statistics and data gathered. You need to consider the different reports that can be generated by these programs, allowing you to get better insights into the website audience and the level of customer engagement.

3. Don’t be afraid to take risks

Another way to improve your ROI percentage is to take risks and come up with new ideas to test. For instance, you could try A/B testing for two different versions of a similar call to action but using different buttons and placement. The more you are willing to experiment, the more you will learn in the long run. Don’t wait too long to measure your ROI on a particular project, or you may go into an unplanned loss.

Key Takeaways

  • ROI is the rate of return that you get from a particular investment. It is given by the formula:
  • ROI = (Net Profit / Cost of Investment) x 100, with the answer expressed in percentage form.
  • ROI in affiliate marketing is calculated as:
  • ROI = (Affiliate marketing revenue- affiliate marketing costs)/ affiliate marketing costs x 100 

FAQ

What is a good ROI?

It depends on the industry. A good ROI would be 10% in the share market. In advertising, it could go up to 1400%.

How is ROI calculated?

ROI = (Net Profit / Cost of Investment) x 100, with the answer expressed in percentage form. It can also be expressed as

ROI = (Sales Revenue – Marketing Cost/ Marketing Cost). 

What is the average ROI for marketing?

There’s no one-size-fits-all answer, as it can vary depending on your industry, marketing channels, and overall business goals. However, a rule of thumb suggests a 5:1 ratio is a good benchmark. In simpler terms, this means for every dollar you spend on marketing, you should aim to generate five dollars in revenue.