While ROI (Return on Investment) is an elusive term for many small business owners, it is worthwhile and useful to get to know. By following one simple formula and reading these few real-life examples you’ll be able to monitor and improve your online marketing campaigns like never before.
What is ROI
As the two ingredients of “ROI” – “return” and “investment” suggest, ROI is a tool with which you can measure how effective your marketing campaigns are. ROI gives you a precise insight into how much money you can throw into promotional marketing and whether your campaigns are booming. Understanding ROI is crucial when you consider the first principle of marketing: getting a higher return to what you’ve invested.
The formula to calculate ROI percentage is
If your campaign’s ROI percentage is 100%, you’re breaking even. If it’s higher than 100%, it’s profitable.
Small Business ROI Examples
Laurence is a photographer based in Alberta, Canada. She decided to invest $99 in an AdWords campaign run by WixPromote. In the first week of her campaign her ads were viewed 1,900 times and 25 potential clients clicked on her advert. 3 potential clients filled out her website’s contact form and she received one order for a photo shoot session.
Since her prices range from $165 to $1,475, and her average cost per conversion – photo shoot – is $40 (the money spent on clicks) – she got a great return for her money –> $165 – 40 / 40 * 100 = 312.5%!
Determining your marketing campaign’s ROI can be a very simple process if your website is after plain sales. The Google AdWords center provides you with the costs for a specific time period. The net profit for your business can then be calculated based on your revenue from sales made via your advertising campaign, minus the cost of your advertising budget. Dividing your net profit by the advertising costs will give you your campaign’s ROI for that period of time.
Ask Not What ROI Can Do for you, But what Can you Do for ROI
Laurence charges $1,475 for a wedding package and $165 for a modeling shoot. While the market for the latter is much less competitive, its average CPC (cost per click) might be cheaper, and its CTR (Click Through Rate) higher. But this doesn’t necessarily mean that the modeling campaign is generating more capital, on the contrary! Learning how to calculate ROI gives you a much clearer perspective, since you add the actual gain from your product to the equation.
To sign up for a Google advertising campaign, or get a free quote, visit WixPromote.