Return on Investment is an often miss quoted and misunderstood measure of marketing effectiveness. Here we will review the calculation and then explore some interesting implications of the resulting figure.
The calculation itself is very simple Return On Investment = Profit/Investment
So to expand
ROI equals
(All Revenue Generate As A Result Of Marketing Activity – Direct Cost of Sale)
divided by
Direct Cost of Marketing Activity
So you need to be able to measure all the revenue that was generated this should include offline conversion as well as onsite transactions. It should also include (repeat sales to each customer – servicing costs).
MediaTracker.co.nz can be used to capture all the online revenue or actions generated by a particular campaign and can also report repeat business linked to the original acquiring campaign.
Cost of sale and offline revenue generation will need to be estimated and included in the calculation. Surveys, call centre training or site coupons can be used to help track offline conversions.
Once ROI has been calculated the campaigns effectiveness can be quantified and adjusted accordingly.
ROI should always be greater than your cost of capital (i.e. borrowing costs for money to invest, etc). For most stable companies, this means that ROI should be greater than 1.1 or 1.15.
However, if you see an ROI that’s much greater – such as 1.5 or more – you need to take action: you should spend much more on this highly profitable initiative! While this will ultimately decrease the ROI, you will be extracting the initiative’s full value in the meantime.
First Rate can work with you to calculate the ROI from all of your sites marketing activities and will help you extract the maximum amount of profit.
So by investing more in profitable activities link search engine, email and affiliate marketing you may decrease ROI but your overall profits will increase!