The only way to correctly choose the investments that a company must make is to understand well which are the strategies that give results and are capable of bringing the business closer to its objectives.
But with so many customer acquisition and retention tactics, how do you know, specifically, what works best for your business?
It seems complicated, doesn't it? But the answer is to accurately calculate the ROI and act accordingly. The great advantage is that, in Digital Marketing, this is completely possible.
Do you want to know more about ROI, how to calculate it, and what it is for? Stay with us, we'll explain everything you need to know about this impressive metric!
What is ROI (return on investment)?
The term ROI is the acronym for the English expression "Return on Investment", in Spanish Return on Investment. Through this indicator, it is possible to know how much money the company is earning (or losing) with each investment made.
This includes everything that is done with the objective of obtaining future profits, such as marketing actions, sales training, acquisition of administration tools, and new customer retention strategies, among others.
In this way, it becomes clear not only which investments are worthwhile, but also how to optimize those that are already working, in order to have better performance. How To Calculate ROI
ROI can be calculated in several areas, such as:
- ROI of Content Marketing;
- email marketing ROI;
- ROI from social media;
- ROI of campaigns in Google AdWords;
- ROI corporate blog;
- SEO ROI;
- among others.
Why is ROI important to the success of my business?
As you can see in our Digital Marketing 3.0 ebook, the subject is very broad and offers an incredible variety of methods and tools for those who want to do business on the Internet. But, many options can confuse even those who already know the subject well.
Apart from that, remember that Digital Marketing actions, although reliable and effective, can offer different results depending on your market niche, and target audience, among other details.
Therefore, controlling ROI is essential. It helps answer some deep questions about your business, like these:
- What are the company's major sources of profit?
- What are the most effective communication channels?
- Is the performance of marketing initiatives as expected?
- Has the sales process proven to be efficient?
- Does customer service contribute to customer loyalty or is it falling short?
Of course, it's useless to expect to find detailed information solely by looking at a specific ROI period, but it will give you a good direction of where to look.
Then, using other important metrics and indicators, you can drill down to the points that need improvement.
How to calculate ROI?
The easiest way to calculate ROI is by following this formula:
ROI = [(income - costs) / costs] x 100
You can use it comprehensively, to analyze the business as a whole, or specifically, to evaluate a project or area, individually. By working in this way, it is possible to identify errors and problems in any part of the business.
In addition, the final result is in percentage, which makes it easy to compare the ROI of different actions or strategies. To facilitate this process, we have created an interactive calculator, so you only need to enter your numbers and press the "calculate" button.
What is classified as "income"?
Revenue is everything the company collects from sales. When calculating ROI for a specific area or campaign, remember to only use the amount raised by your chosen segment.
For example, to calculate the return on investment for an e-commerce platform in its Email Marketing campaigns, the value of the income must only represent the sales of that channel and not that of the store as a whole.
What are "costs"?
The costs are all those expenses necessary to make the investment viable.
In the case of the previous example, of the e-commerce platform, the costs are represented by the amount paid to use the platform, the price of hosting the website, the investments in paid advertisements, the expenses with the Internet, telephone, and everything that is necessary.
How to evaluate the results of your business?
To better explain this metric, let's analyze the fictional case of the virtual store mentioned above.
Let's say the business as a whole received $14,000 in sales and $5,000 came in through the online store.
To keep the site running, you need to spend $1,000, while the physical store needs $3,000.
In this case, the ROI of our electronic commerce would be:
ROI = [(5,000 - 1,000) / 1,000] x 100
ROI = (4,000 / 1,000) x 100
ROI = 400%
In other words, the return obtained is 400%, that is, for every US$1 invested, you will receive US$4.00 in profit.
Meanwhile, the ROI of the physical store would be:
ROI = [(9,000 - 3,000) / 3,000] x 100
ROI = (6,000 / 3,000) x 100
ROI = 200%
It is worth remembering that the end result can vary greatly. Everything depends on the action taken, the quality of the planning, and the execution, among other details.
The important thing is that with the ROI in hand, it is possible to analyze:
- What was done (or was not done) that could have influenced this result?
- Is there a relationship between high-yield investments?
- What is it about high ROI shares that can be replicated in others?
- Are the campaigns performing similarly to my competitors?
- Does your company have better results than others in the sector?
In the example above, the result was positive, but it can also be negative.
In these cases, this means that the investment caused the company to lose money. Although this is not good news, this information allows the company to investigate the problem and make any necessary changes.
zobia
