Return on investment (ROI) and is a financial metric that measures the impact of a project or investment. ROI is one of the most important metrics that businesses use to evaluate the performance of a marketing campaign, or even a business as a whole.
While it is a useful and important metric, ROI does not tell you everything about the performance of your campaign. You need to look beyond ROI to understand how well your campaign performed and what you can do to optimize it.
ROI is calculated by dividing the profit (amount gained) from an investment by the cost (amount spent) of making that investment.
The ROI formula is actually pretty simple:
ROI = [(Amount Gained - Amount Spent) / Amount Spent] x 100.
If Campaign A costs $20,000, generates 40 customers who, in turn, bring about $34,000 of revenue in total, then the ROI of Campaign A is +70%. This is a positive ROI:
In this case, you’ve spent $20,000 but made a profit of $14,000.
Now, let’s assume that Campaign B costs $1,000, generates 1 customer who brings $300 in revenues. In the case of Campaign B, the ROI is -70%. This is a negative ROI:
In this case, you’ve spent $1,000 but also generated a loss of $700.