What is ROI? Learn how to calculate Return on Investment

what is roi learn how to calculate return on investment 61b089bb2440d

ROI is short for “Return On Investment.” It is a metric used to know how much the company earned through its investments. To calculate the ROI it is necessary to raise the total income, subtract the costs from these and, finally, divide that result by the total costs.


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We always talk here on the RD Station blog that, for a long time, the results of advertising campaigns were analyzed based on guesswork.

The Digital Marketing , however, brought a series of metrics that allow you to know precisely the efficiency of your investments.

One of the best known indicators is the Return on Investment (or ROI, short for Return on Investment).

As the name itself suggests, ROI allows you to know how much money the company loses or gains with the applications made in different channels.

In this post you will learn what ROI is, why this metric is important for your business and how to calculate it.

Do you need a tool to help you easily calculate your Return on Investment? Download our ROI Worksheet for free.

ROI calculator for paid ads

Learn how to invest in paid ads to generate more leads and leads.

What is ROI

ROI is an indicator that allows you to know how much money the company lost or earned with the investments made (in paid advertisements, new tools, training, etc.).

This way, you can know which investments are worthwhile and how to optimize those that are already working so that they have an even better return.

The metric is important because it allows you to evaluate how certain initiatives contribute to the results of the company.

In the same way, based on ROI, it is possible to plan goals based on tangible results and understand whether or not it is worth investing in certain channels.

How to calculate ROI

There is a simple formula to calculate ROI, which consists of:

fórmula ROI

Imagine that the profit of your company was $ 100,000 and the initial investment was $ 10,000. Using the formula above, we have:

  • ROI = (100,000 – 10,000) / 10,000
  • ROI = 9

In this merely illustrative example, the Return on Investment was 9 times the initial investment. You can also multiply the result by 100 to get it as a percentage (in this case, 900% return).

 

Why is it important to obtain the ROI?

ROI is an effective indicator when it comes to calculating the return on an action and can be applied to all investments, from those made in marketing campaigns and events, to improvements in the company’s infrastructure, to name. some examples.

When evaluating your company, investors will also see the ROI, since it is essential to know how much you will earn to know if the investment is worth it.

Being attentive to this indicator also allows the company to plan its goals based on possible results to achieve, observing previous performances.

You can also identify the time that investments take to bring a return.

Also keep in mind that your company must understand what ROI means to itself and how the metric influences its objectives. Plot realistic metrics and monitor them constantly.

Read more about ROI in the post:

A tip to multiply your ROI: Conversion Optimization

How are your website conversion rates? Whether you have answered that they are satisfactory or that they are wrong, you should know that there is always room for improvement.

And to improve them based on solid information, you must follow some precepts of CRO (Conversion Rate Optimization – Conversion Optimization) .

The most immediate benefit of the CRO is, as the name already says, the optimization of the conversion rate , that is, the improvement of a page -or even of an entire website- so that it generates more conversions from the same volume of traffic.

But what is the relationship between CRO and ROI? Where do the two pieces fit?

Every day that a bad page, ad or landing page is in the air, money is lost. Ask yourself the following question: “How much would you earn in a year if you increased your conversion rate by 25%, 50% or 100%?”.

Optimizing the conversion of your pages, ads, email campaigns, blog posts, posts on social networks and other Digital Marketing actions means generating more results, which has a direct impact in the ROI.

Some benefits of CRO and how it can improve the Return on Investment in Digital Marketing of your business are:

1. Higher profit:

Not only does the turnover increase, but also the return on investment is greater, since it uses the same structure to bring more results.

2. More budget for traffic:

Combining traffic growth with CRO is very powerful for businesses. By generating more money to invest in traffic, you also get more conversions, you generate more money, you can invest more in traffic and so on.

3. Greater maneuver for CPCs (Cost per Click):

By generating more conversions and sales, you have more money to pay for visitors with paid ads. Thus, you have a greater bargaining power in Google auctions, for example.

And that can make life difficult for your competition, raising the value of the auctions and making them pay more for the CPC, which only increases your distance in relation to the competition.

Optimize Facebook Ads and achieve a higher return on investment

The speed and ease of creating new campaigns and the speed with which the results appear – especially when we compare these paid actions with organic channels – are great attractions that make Facebook Ads an accessible opportunity to anyone who wants to start to advertise your product or service.

However, it is because of this ease that we frequently find people who did not achieve, in these channels, the expected result, and therefore do not believe that a new investment can have a positive return.

This happens mainly due to the lack of alignment of this investment with the company’s Marketing strategy, which leads to campaigns that are not optimized and without clear objectives.

In any case, it is necessary to understand that ads do not sell by themselves: it is necessary to understand the dynamics of these tools, the profile of the target audience present in each channel and the optimizations and good practices that will make a difference in the results.

In this section, we bring some strategies that we use in RD Station and that you can use to know how to advertise on Facebook (by optimizing existing campaigns) and obtain a greater return on investment (ROI).

Tip 0: use Facebook Power Editor

Power Editor is a tool for managing Facebook ads that allows you to quickly perform various actions, such as creating, editing and duplicating campaigns, and perform bulk alterations.

We consider the use of Power Editor a prerequisite for being able to work with Facebook Ads more efficiently and productively – both which we call it here as tip 0.

With Power Editor , everything you create and edit remains offline , that is, to apply all the alterations to your ads you must load the changes through the tool itself, as in the example below:

ROI

To start using Power Editor , go to this link .

If you use several advertising accounts on Facebook, we recommend using the platform Facebook for companies , where you can more easily manage your accounts, access the ad manager, Power Editor and all your pages.

1 – Install the Facebook Ads pixel

The Facebook pixel Ads is a small line of code that you must install on your website to obtain information and perform actions, such as:

  • Count the number of conversions made from Facebook Ads campaigns;
  • Create a retargeting list, that is, every time a person who is on Facebook and visits your website (this is a lot of people) Facebook will have this information and will allow you to display ads for all those people within the network;
  • Create a Lookalike Audience list. Based on the list of people who have visited your website, Facebook will search for other people with a similar profile, thus expanding the audience for your ads.

Therefore, to increase (and by a lot) your results and decrease the cost per Lead, it is very important that you have the pixel installed.

To see this code, enter your Facebook account for companies, go to the menu button at the top left and find in “all tools”, in the “Assets” section, the option “Pixels ”, As shown in the following image.

ROI

To go directly to the “Pixels” tool, enter this link .

In the Pixels window, select “Actions” and click on “See pixel code”:

ROI

With the code in hand, the technical part of the installation begins. At this time, instead of installing the pixel directly into the code, we strongly recommend the use of Google Tag Manager . It is a Google service in which, from a single code, you can add several others, including the Facebook Ads Pixel.

In case you have access to the website codes and want to install without Google Tag Manager, copy the pixel code and place it between the tags and of the source code of your website.

ROI

Tip! ????

To check if the pixel is installed correctly, there is a plugin in the Google Chrome browser called Pixel Helper . With this plugin you will be able to know if the pixel is installed correctly, how many codes the website has and what is the pixel ID.

ROI

2 – Do not try to sell to an audience that does not know you

Many companies think that because they are paying, to generate traffic to an offer, they must focus directly on the sale of a product, that is, direct all ads to a product or service page.

It happens that not all people are at the time of purchase. As Chet Holmes shows in his book The Ultimate Sales Machine, only 3% of your potential audience is actively searching for your service:

ROI

What we recommend is to align your online advertising purchase strategy with an Inbound Marketing strategy, making offers announcements for people who are not yet at the time of purchase.

To fully understand the process of attraction, conversion and relationship, I recommend you read this post: Lead generation and management: the best way to increase sales in your company .

You can do this by offering something of value to those people, such as eBooks, webinars, free tools, templates, etc. In exchange for the offers, people will give you their information – such as name, email, company, position, segment, etc. – that you will use to rate them and maintain a relationship.

With this information in hand, you will be able to nurture these Leads and get them to arrive more quickly at the time of purchase.

If you already have a Leads base, we advise at this moment to start a relationship through Facebook Ads, searching for those Leads on Facebook and creating a list from them.

How it works: you are going to create a custom Audience from an email list. After loading this list, Facebook will see which of those emails are associated with one of its users and will create a segmentation for which you can display ads.

ROI

You can access to manage your audiences in this link.

At RD Station, a large part of our sponsored ad budget is allocated to ads aimed at generating leads to attract new users. This allows us to increase our database and create another type of relationship, also increasing the chances of closing a sale.

3 – Do not make the acquisition of fans the main objective of your strategy

Many people are impressed with some common numbers in Web Analytics: number of pageviews, Twitter followers, Facebook fans, YouTube views, etc.

This type of metric is usually good for the ego. The Marketing Manager gains credibility and admiration in the company and everything seems perfect. Although one essential point is missing: how much does this contribute to sales? In the end, selling is the only activity that effectively brings money to the business. Everything else is cost.

One of the great advantages of Digital Marketing is its high measurement capacity, and not using it correctly can be considered a waste.

Speaking of Facebook Ads, a common mistake we observe is when companies focus a large part of their budget on acquiring fans, that is, increasing the number of “likes” on the page.

It is clear that the amount is important, as this serves as social proof and transmits credibility to many people who do not yet know the company. It happens that, as we said before, focusing on those metrics will not be something that will directly bring a return on sales.

Another factor here is the low organic reach: when you share something on your company page, this update will not be displayed for 100% of your fans. On the contrary, it will be displayed for a very small portion, making that to reach more people, you have to pay.

The recommendation, in this case, is to focus the ads on “conversions”, as shown in the image below. This is because the final metric (conversions) actually represents something that will have a financial impact, either immediately, when the ad is for a product, or indirectly, when the focus is on the generation of leads.

With this objective, you will be able to show – and verify – the ROI (return on investment).

fórmula ROI0

4 – Promote blog posts to increase the volume of people on your retargeting list

Being an indirect and low-competition offer, promoting your company’s blog posts is a good strategy to get traffic at a low cost per click.

With this type of campaign, you drive traffic to your blog and bring those people into contact with the Facebook Ads Pixel (as we mentioned in tip # 1). This will make them included in your retargeting list, which you can use as a target audience for your campaigns.

A tip that arises from this, is to enter ” Information about the Public ” and discover more about your audience, such as the pages you are people like them, their location, among other things.

In the image below, an example of the pages that people who visited the RD Station website like.

fórmula ROI1

5 – Track all Facebook Ads traffic using URL Builder

As we said before, a great advantage of Digital Marketing is its measurement capacity. Any action taken can be measurably analyzed in the results.

Something that currently happens with most web analytics tools, including Google Analytics, is that they do not distinguish between traffic from Facebook ads and organic traffic, that is, it does not come from a pay channel.

To avoid this situation and to be able to correctly measure your Facebook Ads campaigns, we recommend the use of URL Builder , a Google resource that allows you to trace the origin of traffic in a personalized way, and thus make it easier to analyze the results.

6 – Monitor the Leads generated through Facebook Ads in your sales funnel to verify that they are generating ROI

The Facebook Ads ad manager is an excellent tool to track the performance of your campaigns (costs, budget, reach, etc.).

It happens that to make a deeper analysis of the results that really impact the company, you will need other tools – such as Google Analytics, which serves to have greater insights about the visitors of your site, and a tool of Marketing Automation as it is RD Station , to foster a relationship with the Leads and analyze the sales result obtained by each campaign.

RD Station can be used to have a complete view of the sales funnel and some more information about the leads, such as what phase of the purchase it is in and its evolution in the funnel over time.

7 – Analyze everything related to the campaign

This should not be a recommendation, but a prerequisite for everything in Digital Marketing. We have already seen on several occasions campaigns that fail due to errors that could have been seen with simple tests. In the case of ads it is even worse, as it is wasted money.

Regarding this, it is interesting to always do a double-check (second check) to confirm if the path of the campaign strategy will work and verify that the user reaches the objective.

Before posting an ad or increasing your Facebook Ads budget and starting to invest more, think about the whole strategy and what will happen after the Lead clicks on your ad. Some things to check:

  • Is the ad targeting correct?
  • Are there spelling errors in the ad or on the pages the leads will go to?
  • Is the Landing Page (page the visitor is taken to by the ad) working?
  • Are the texts conveying the value proposition of your offer well?
  • Where are the leads going after completing the form?
  • Is the integration with your Email Marketing software working?
  • Is there an automation flow configured to maintain relationship after visitor conversion to Lead?

How to assemble a report to test ROI

Imagine that you are an employee of a company or an agency and you need to assemble a report to present the results of Digital Marketing actions and strategies for the Board of Directors of your company or for a client.

You can spend hours and hours making a huge report of many pages, removing practically all the data that you can get from Google Analytics .

Even so, it is likely that, when presenting your report, it does not make much sense, and the Board of Directors or clients will hardly understand the meaning of all the data displayed.

Therefore, we can extract 4 lessons about mounting reports:

Data and information are different: it is not worth using all the data that you have available if it does not make sense for your company or client.

More concise reports can also help deliver more relevant information, but they certainly do not guarantee the presentation of performance metrics. Mainly if, at the end of the presentation, the following questions were not answered: “What do I do with this? What are the next steps? ”

Reports do not exist just to test results, but to direct the next steps : the size of the report and the time it takes to be done are not decisive for its relevance, and a one-page report that took an hour to complete can deliver much more information than a 50-page report that took 8 hours.

What really matters is that the report delivers value and importance, meeting the demand of the company or the client.

The report should be focused on your audience and the goals that matter to them: It is useless to ask about accesses if you do not know how much you sell, or what you need to sell more or generate a higher average income. Likes, pageviews and impressions are important, but they are not business metrics.

Vanity metrics do not keep a business running: just branding is useless to keep a business open. If you have excellent branding but don’t turn it into money, that can be dangerous for your business.

With those four points we already know much more about reports. But we still need to know how to do them. Therefore, we separate six steps to assemble reports that test ROI.

1. Define the audience

The first step is the definition of the audience. Who am I going to talk to? Are you the CEO of the company? Are you the marketing director? Are you an analyst?

Depending on the audience you should have a different approach in the report. If it is for the Board of Directors, for example, it shows the contribution in profits for the business.

2. Define what and for what

After defining who the report is for, it’s time to define what it will display and what it will be for.

If you can’t determine that for each displayed metric, it’s a sign that it shouldn’t be there.

3. Define the periodicity

Now you must define the periodicity of the report. Generally something that works is to put the analysts more in contact with the data, followed by the coordinator, followed by the Board of Directors.

This is because the analyst is in contact with this data almost every day, so he needs to monitor it continuously.

For the coordinator, this contact with the data can be weekly, so that he can see how far he is from the goals and where to attack to achieve them.

And, for the Board of Directors, the ideal is that the reporting model is either biweekly or monthly. That is, it defines the periodicities by hierarchical level.

4. How to extract those metrics

It is only now that you should think about the tool to extract those metrics. The best known is Google Analytics, but there are others that can help:

Other tools you can use are:

  • Marketing BI, by RD Station : It is already divided by hierarchy, with relevant and business metrics;
  • Cortex Intelligence : It is a company that works big data. They work on the data and deliver information in a relevant way.

5. Assemble a template

Step 5 is to assemble a template, since you don’t have to spend hours and hours to assemble a report. This process has to be fast, something that you can do with ease.

If you need help, experiment using this monthly Digital Marketing report template from RD Station.

6. Analysis

Here are some forms of analysis that can generate insights:

  • Action and reaction: What did I do and what did I stop doing that produced results? What did I not do that did not generate a result?
  • Correlation: What is the correlation between campaigns that have worked and those that have not? At what point should I go back to the failed campaigns and improve? Based on good experiences, what do I have to replicate?
  • Benchmarking: Where am I? What am I doing? It’s OK? Where can I go?

After you’ve done this and understand where you are, set achievable and measurable goals that aren’t too far apart so as not to demotivate your team.

And, after setting goals, put together an action plan. This should be the final result of the report. And this is where you need to get to: the action plan.

With all this content, you have the general ideas to create a report that demonstrates your ROI to your target audience.

If you need to, you can chat for free and without obligation with one of RD Station’s consultants to find out how our tool can increase your ROI and help generate more results in your company . Schedule a conversation now.

ROAS: How is it different from ROI?

The ROAS (Return on Advertising Spend) or Return on Advertising Investment, performs the function that its name attributes to it. Their number refers to expenses related to advertising.

Its calculation is simple and direct: recipe / investment x 100 (to understand it as a percentage). ROAS is the most important metric for the agency, since the client’s internal administrative costs are not taken into account in this analysis.

In other words, through ROAS, the agency has a genuine view of its client’s profits and investments in terms of advertising campaigns. If the customer invested $ 1,000 in advertising and billed $ 2,500.00, his profit was $ 1,500.

Let’s understand the percentages:

ROAS = 100%
It means that the campaign has a profit equal to the investment.
Example: For every $ 1.00 invested, there is a profit of $ 1.00.

ROAS> 100%
It means that the profit is greater than the investment.
Example: At a ROAS of 700%, for every $ 1.00 invested, you earn R $ 7 , 00.

ROAS

It means that the profit is less than the amount invested.
Example: In a ROAS of 95%, for every $ 1.00 invested, R is earned $ 0.95.

How to interpret the ROI and results of your marketing campaigns!

Having the ROI value in hand and preparing a report that presents its results is not the end of the process. Now it is necessary to interpret the numbers and the information generated, taking into account the impact of each on the business as a whole. And of course, in the midst of so many metrics, it’s easy to get stuck!

To make it easier, we have separated the analysis into 3 layers, from macro to micro, since we believe that this way we can find problems and opportunities more efficiently.

  • The most complete analysis refers to the business layer, whose objective is to expose metrics that test the performance of your business as a whole.
  • The second layer is the acquisition channels, which splits the results among the acquisition sources to understand and optimize the specific channels.
  • Finally, we have the campaign layer, where the results of your first-line actions are interpreted, whose performance will be developed in the macro results seen in the upper layers.

Why review individual campaigns?

Campaigns are the first line of your digital strategy, and their joint action leads us to have a good ROI in the layers above. What we indicate is, when identifying the bottlenecks to act, always go from the macro (business layer) to the micro (campaign layer).

For example: analyzing the marketing funnel of a certain business, we identified a poor performance in the conversion rate from Leads to Business Opportunities. Once this bottleneck has been identified, we unravel in which acquisition channels we are working better or worse for this metric.

As a result, it is possible to optimize channels with below average performance, identifying good and bad campaigns and then working to align them with best practices.

It is also worth mentioning that when we talk about campaigns, we are referring to the number of conversions and how your automation and email campaigns contribute to converting leads into business and sales opportunities.

The interpretation of the effectiveness of conversions, emails and flows can later be translated into rating intelligence through Lead Scoring, scoring each Lead action according to its performance.

Conversion analysis and its role in generating leads and sales

By conversion we understand the contact points between a visitor and his company, where an offer is accepted with the delivery of data in the form.

This vision allows us to understand where we obtained the best results in lead generation and sales, as well as the effectiveness of this relationship. With this, it is possible to assign financial values ​​to each conversion, multiplying the average ticket by the number of conversions. This job ultimately gives the ROI of each different conversion.

Ways to interpret conversion performance beyond ROI

Now that we’ve talked about what’s important to analyze, let’s talk about how it can be interpreted. Measuring the effectiveness of conversions can be done in two ways:

1. Measures the proportion of business opportunities and customers that had a certain behavior before reaching this stage

The purpose of this form of analysis is to understand to what extent this conversion helped the prospect’s evolution in the buying process. This data can be found through the relationship between the number of opportunities / sales and the number of Leads that performed a certain action.

2. Measures the proportion of leads that had a specific commitment to the last action before becoming sales and commercial opportunities

With this form of analysis, we will understand the influence of this conversion on the lead’s decision-making when making a specific final conversion, such as buying your product / service.

This data is more difficult to find without the correct tool, but it is calculated by the relationship between opportunities / sales and Leads that had a certain commitment as the last action before the final decision.

In summary, campaigns are the first line of your digital strategy, and the sum of your results will impact all levels of your business, as well as being a great opportunity to take advantage of ROI by replicating best practices.

Do you want more useful information to demonstrate the ROI of your digital strategies? Watch this webinar that is part of our Latin American Digital Marketing Week.

Now, do you want to take advantage of a tool that helps you improve your ROI, through the efficient application of your Digital Marketing strategy? Fill out the form and start using RD Station Marketing for free now.

Frequently Asked Questions

What is ROI?

ROI is short for “Return On Investment.” It is a metric used to know how much the company earned through its investments. To calculate the ROI it is necessary to raise the total income, subtract the costs from these and, finally, divide that result by the total costs.

Formula to calculate ROI

To calculate the ROI you must previously know: the profit obtained from your sale and the investment you made to obtain that sale. The ROI = (Profit – Investment) / Investment

This article was published on October 20, 2020 and updated on November 4, 2021.

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  • Digital Marketing Strategy
What is ROI? Learn how to calculate Return on Investment

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