When you put your money and effort into something, you probably want to know what results it's driving. ROI measures the performance and the efficiency of your investment compared with other investments.
ROI is calculated by dividing total revenue by the total cost of investments. ROI = revenue / media cost or ROI = revenue / (media cost + additional fees or associated costs). As a simplified example, if a business spends $2,000 on a digital advertising campaign that generates $10,000, the business’s ROI is 500% or 5:1. Five dollars earned for every one dollar spent.
In digital marketing, ROI is often substituted for ROAS.
In order for a business to receive a positive ROI, they must earn more money using marketing channels than they are spending on the marketing itself.
A Return-On-Investment refers to the metric used to evaluate the profitability of any given investment or compare the promise of multiple investments. To calculate an ROI for given investment, take the Gain from Investment then subtract from it the Cost of Investment, then divide that difference by the Cost of Investment ([Gain-Cost]/[Cost]). The larger the ratio is, the better! If the ratio is above one, you will be making more than your initial investment. However, if your ratio is negative, then that investment may cause your company to lose money. To carefully choose which investments to follow, try to determine the ROI before making a decision.