In its simplest form, ROI is calculated by dividing the profit or revenue generated by a marketing effort by the total cost of that effort. For example, if a $1,000 advertising campaign brought in $5,000 in sales, the ROI would be 400% - the revenue earned was 4 times higher than the amount spent.
ROI can be measured on various marketing activities:
- Advertising campaigns - Compare sales or conversions generated to ad spend
- Email or content marketing - Measure revenue against creation and distribution costs
- Events - Evaluate revenue relative to event production expenses
- SEO and inbound marketing - Factor gained leads/sales against costs of optimization efforts
A positive ROI means the financial gains from marketing outweigh the costs. This indicates the campaign contributed more value back to the organization than the resources put into it.
A higher ROI is typically more favorable. This allows companies to generate the most profit per dollar spent. Achieving consistent, strong ROIs over time demonstrates the efficiency and sustainability of marketing operations.
In addition to being a performance metric, understanding ROI helps marketers:
- Identify the most lucrative customer segments and campaigns to prioritize
- Compare the returns of different marketing mediums and tactics
- Determine the right budget to allocate behind initiatives
Performance against ROI targets also guides important business decisions on whether to continue, optimize, reduce, or cancel marketing activities. By accurately measuring and reporting ROI, marketers can strategically drive growth opportunities while justifying the role marketing plays in contributing to overall company profitability.
