As a marketer, you are bound to work on campaigns in one way or another. Whether it's at an agency or in-house for a company, campaigns help promote products or services through different forms of media. While these campaigns are great for a brand, they can also be very costly. So how can you know and measure if what you are doing is successful? To know this you want to calculate your ROI or return on investment.
What is ROI?
ROI stands for return on investment. It is a metric that measures the profitability of an investment. ROI does not only pertain to the marketing industry, you can use ROI to measure any sort of investment. Before calculating your ROI it’s important to know your marketing campaign objectives. Aligning your goals and objectives with KPIs will help measure your success. One way you can organize your marketing plan is through the marketing mix or brand identity prism.
To calculate your ROI you will need to track all your costs for the investment and the net profit. Once you have that you can insert it into the following formula.
ROI = (Net profit/ Cost of investment) x 100.
In other words, (Money gained - Money spent)/ Money spent x 100.
Let's assume you are profiting from your investment, how do you know what is working and what can be optimized to get even better results? Calculating your return on investment is a great start to understanding your marketing efforts.
ROI in a real-world example
Depending on what role you have as a marketer will depend on the type of investments you will be making. Someone in SEO may invest in link-building strategies while someone in PPC will invest in display ads. For this example let's look at an industry that heavily invests in social media ads during January, the gym industry.
Let's go with a YouFit gym in South Florida, more specifically the city of Pembroke Pines. For this example, let's keep it simple.
Assume they spent $2k on Instagram ads for the whole month of June. With this, they can reach about 5k impressions. On average each person they get to sign up will keep a membership for six months. They charge $10 a month for each membership. After the campaign ends they see they acquired 70 new clients through the campaign. They can track this through Google Analytics and using UTMs in their URLs. Based on the information given we can do some quick calculations.
70x10=700 but it was stated that each client will at least have this membership for six months. So the $700 they earned for one month can be multiplied by six.
700 x 6 = 4,200.
Now we have all the information we need and can calculate the ROI.
4,200-2,000=2,200
(2,200/2,000) x 100 = 110%. In this case, Youfit more than doubled its investment. This is assuming they are counting each client's payments for at least six months that they will have the membership.
Now let's calculate what it would look like if they looked at it differently and only took into account the first month as the revenue.
We know they acquired 70 clients and the dues at the end of the month are $10 each which gives a total of $700. Divide that by the investment and then multiply by $100.
(-1,300/2,000) x 100 = - 65%
Here we can see why it is very important to take into account the average length of a member's stay there. If each of their customers averaged only one month this would be a bad investment. However, when looking at it as a long-term investment you see it is a campaign worth doing.
Why ROI is important
This example is a great reason why calculating ROI is important. This example will help YouFit understand its investment and optimize its strategy. Calculating ROI is a great way to see the value of your investments. This will give you insight into what you need to improve or if you have the secret recipe to success with your investments.
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