What is ROI in digital marketing and how to calculate it

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The word ROI is very familiar to marketing people. ROI stands for Return Over Investment, that is, the Return on Investment. Therefore, knowing what ROI is in digital marketing means knowing the results of your investments.

Also known as return rate, measuring ROI is essential for analyzing the results of your digital marketing campaigns and aligning strategies with the goals set. And as incredible as it may seem, many companies do not usually calculate the ROI on their campaigns, especially digital marketing. This mistake is very common, as are those who forget to add up shares or make incorrect analyzes of their investments.

Learn more about what ROI is in digital marketing and how to calculate it in this article.

How important is ROI?

Those who sail without direction end up anywhere, as the saying goes. Therefore, measuring ROI means knowing exactly where you are going. As we already said in the post about Measurement of Results, you must always evaluate your business, so that you can evolve later. ROI is another KPI to be considered among so many other metrics, with the difference of presenting a tangible financial result.

Digital marketing, being flexible and measurable in all its tools, allows you to have a return on investment at your fingertips. If you have, for example, a conversion rate of leads that turn into sales, you will easily be able to calculate the ROI for that specific channel.

How is ROI calculated?

Calculating ROI is quite simple:

% ROI = [(Investment Gain – Investment Cost) / Investment Cost] x 100.

The investment gain, in this case, is the profit margin you have on each of your transactions. For example, if you sold R$ 100,000.00, with a profit margin of 35%, the Investment Gain item in the calculation will be R$ 35,000.00. And if you had an Investment Cost of R$ 10,000.00 in a digital marketing campaign, the whole formula would be:

% ROI = [(35,000 – 10,000) / 10,000] x 100

% ROI = [25,000 / 10,000] x 100 = 2.5 x 100 = 250%

In this example calculation, you had 250% of profit, or 2.5 times the return on the amount invested.

This is why digital marketing is so cool, as it allows all actions to be measured. O inbound marketing, for example, allows you to integrate digital marketing software, such as RD Station, common CRM software, where sales are integrated with the generation of leads.

This will allow you to know how much you are investing in digital marketing and exactly how much results it is generating for you. So, just apply the ROI calculation we mentioned above.

Choosing Where to Calculate ROI

There are several ways to calculate ROI. Everything will depend, firstly, on which area will be analyzed. You can analyze the ROI of all investment in digital marketing, for example, as well as other actions, such as offline campaigns, training, events and so on… 

You can also calculate the ROI for each area of digital marketing, such as email marketing campaigns, SEO strategies, Google Adwords campaigns and social media.

Separating the metrics allows you to know how much you spent on each of them and what return each one provided. This is actually the tip we give. You must calculate the overall ROI of your digital marketing campaigns, but also of each of the channels.

This will allow you to know where to run in each situation.

What should I include in the calculation?

The calculation of ROI in digital marketing must include everything from investments in paid media (Google Adwords, Facebook Ads and others), to the hiring of third parties and employees' working hours. If you are going to break down the expenses in each channel, to know the specific ROI of each one, you must also break down the working hours spent on each one.

Therefore, it is very important that you have productivity and project management tools. Using a good CRM will also give you a number regarding your sales team. Don't forget to include them in your investments too.

When we talk about gains, it may seem easier to measure, but it is not. Here it will be very important to know which channel is converting into sales. Again, it will be very important integrate marketing and sales, so you can have an exact X-ray of your investments. The investment cost has to be done end to end, from attraction to conversion. All the steps between one and the other must be accounted for so that you know exactly how much you spend to acquire a customer. And how much return this generates for you.

Be careful in your analysis

Calculating ROI, as we have seen, is very important for any business. Another very important point is to be careful with your analyses. Try to choose a period of time so that you can compare the results. This will also allow you to understand external factors that influence the result, such as seasonality and others that can influence charts up or down.

Some metrics, such as increased website visits or likes on your fan page, may not be as meaningful. A conversion rate that results in a sale is much more valuable than metrics that fill your eyes but not your pockets.

Being very careful will allow the manager to focus his investments, for example, on better qualifying his leads. A much better result can come from a lead that is already within your sales funnel. Therefore, it would be more interesting to invest in these leads than to bring more visitors to the top of the funnel.

When ROI is zero or negative

Just look at the importance of calculating ROI. If it comes back zero or negative, you will have to evaluate whether your Customer Acquisition Cost (CAC) or even whether the average ticket for your products and services are suitable for your business. This type of analysis will even allow you to understand whether you are correctly investing your money even in your structure. You will be able to review your contribution margin. Your fixed and variable costs may be impacting your business, and not just the investment to attract customers.

Much more than evaluating the return on marketing investments, you may end up discovering that your profit margin is very tight. Thus, your campaigns are costing not only because of the amount invested, but also because of the gain on the investment.

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