Calculations about ROI

[Wish]

Hi there, can anyone tell me how do we calculate ROI:confused:

[AussieWebmaster]

get income from advertising - ie. number of sales and divide by spend

roi is return on investment

[Gooner151078]

There are a lot of different ways of calculating return on investment. It very much depends on the way your business works and what is right for you:

Here's as few of the most common methods:

1. Standard Return of Investment

Return / Investment

EG. I invest £125 in an adwords campaign and make £3550 revenue in terms of sales value. Therefore my return on investment (ROI) would be 3550 / 125 = 28.4

This tells me that for every dollar I have invested, I have gained $28.40 back in return.


2. Return as a percentage of investment over a fixed period.

(Return / Investment) * 100%

EG. 3550 / 125 * 100 = 2840%

Although this method is frequently used in financial markets, I it often generates high percentage figuress that I don't find that effective, when dealing with internal figures. It works better with advertising methods where the returns and the investment figures are more closely matched.

It is good to use in presentations to senior staff however!


3. Return after deducting investment over a fixed period.

(Return - Investment) / Investment

EG. (3550 - 125) / 125 = 27.4

Some people believe that it is more prudent to include the investment figure in the return figure. For example, if I gamble $10 and make $20, I am only up $10. Therefore I cannot use $3550 as my return figure, as I have already spent $125 to make it.


4. Cost of Sale

My preference is always to go for option an inverted ROI or Cost of Sale (CoS).

(Investment / Return) * 100%

EG. 125/3550 * 100 = 3.52%

This brings a nice low percentage target that is easy to work to. It also shows the marketing cost as a percentage of the total revenue, so you can stack this up next to other costs and indeed margin.

I would be interested to see what method others use?

[Wish]

the information seems preety good. Thank you so much

[SEO Himachal]

woh! really nice job. thanks!

[antonyseo]

The information on ROI is really good. It is very helpful

[BrianCosgrove]

Good stuff. Just keep a look out for hidden costs. Keep in mind the staff-hours, ad-serving costs, and any other related overhead. It's also important to keep in mind that attribution becomes a hot mess when you move away from last-click attribution to brand-building metrics of other media, assists, visit over visit data, or life time value.