For marketers, ROI is the Holy Grail, the metric of all metrics - it's what allows us to justify the value of our work and whether what we are doing works.
Yet, despite its importance, there’s some confusion about what return on investment actually means and how we can use it to improve our marketing. Let's set the record straight.
ROI is the performance we obtain from an investment, expressed as a percentage. It tells us the benefits we obtained for each euro or dollar invested.
To calculate, we can use this simple formula:
For example, if we have invested 1000€ and earned a profit of 3000€, we will have:
Logically, the higher the return on investment, the more value we attribute to the action.
When calculating, we must take into account the time factor that is often overlooked. Sometimes, an investment can give very long term benefits, which are left unconsidered when applying the formula before obtaining all the return on investment. To properly measure the return on investment, it’s always worth considering how and when we will measure the benefits.
One of the most important uses of this metric is to compare different actions to one another to see which is more profitable and compare the results between different online marketing channels. We can also establish periodic checks over time to see if the results of our actions are generally improving or getting worse.
And finally, we should not forget that no matter how important ROI is, ROI isn't everything. On many occasions, our marketing seek more "intangible" benefits that can be difficult to monetize, such as brand and product visibility. So before dismissing an action, think long term, and ask yourself what returns or benefits can arise within your overall marketing plan.
Be sure to measure and optimize. ROI is a metric that can help you improve your marketing success, but it requires constant effort. Implement regular checks and see if the results are worth it.