What does “Return on Investment” (ROI), the three-letter acronym in our company’s name (ROI Revolution), really mean? How do you measure ROI for your service, channel, campaign, or business? Keep reading to see how to calculate it for SEO, PPC, SMA, and Programmatic.
How to Calculate ROI
Knowing the basic ROI formula can help your business succeed and grow.
To calculate ROI, first subtract total costs from total revenue to get the net profit. Then, divide the net profit by the initial investment and multiply that by 100 to get the percentage.
For example, let’s say you spend $20,000 on a marketing campaign and generate $50,000 in revenue from it. Here is that calculation:
$50,000-$20,000 = $30,000 net profit
$30,000 [net profit] / $20,000 [initial investment] = 1.5 x 100 = 150%
The ROI of this campaign is 150%.
On the flip side, if you spent $20,000 on a marketing campaign and only generated $10,000 in revenue, your ROI would be -50%.
What’s Considered a Good ROI?
A good return on investment depends on a few things, including your business model, industry, and investment type. “Good” often indicates “positive” and typically fits the bill if the ROI is meeting or exceeding your financial goals or industry benchmarks.
Industry Benchmarks
- Businesses with a good ROI often see 5% or higher, and high-growth industries may aim for 10-15% or more.
- The standard for marketing campaigns is typically a 5:1 revenue-to-cost ratio.
- In real estate, the ROI should be higher, between 8-12% or more.
- The stock market often sees an annual ROI of around 7-10%.
Things to Keep in Mind When Calculating ROI
When you want to determine the effectiveness of a project or campaign or whether the initial investment is “worth the squeeze,” so to speak, knowing the ROI can be extremely helpful. However, it shouldn’t be the only thing you look at. There are many other factors to consider after determining your ROI, including:
- Length of Campaign: A long-term campaign’s ROI may look different than a short-term campaign.
- Qualitative Factors: Brand awareness, customer satisfaction/loyalty, competitive advantage, scalability, social & environmental impact, and more may be just as important, even though they’re not necessarily measured numerically like your ROI.
- Tracking Accuracy: Making sure you’re accurately attributing revenue to the campaign or project is important for a precise ROI calculation.
- Conversion Quality vs. Quantity: Are the leads you gained from the project or campaign high quality? Did you bring in more low-quality traffic than expected? Do your traffic/conversions align with your target audience and/or business goals?
- Social Engagement: Social media engagement can be helpful, especially for paid media campaigns. Are people sharing your content? Are they engaging with it how you expected? Do your posts get ample comments, likes, and shares?
- Seasonality: We often think of ecommerce businesses when we think of seasonality, but non-ecommerce businesses often deal with seasonality, too. Perhaps it’s related to a specific report that’s released annually or seeing a lower amount of traffic/engagement during Q4 when search engines place a higher emphasis on ecommerce businesses. Seasonality can, and often does, play a part in a successful or unsuccessful marketing campaign, regardless of the type of business.
Calculating ROI by Channel
Now that we understand the basics, we can look at how to calculate ROI by channel.
How to Measure SEO ROI
Measuring the return on investment of an SEO campaign is similar to the basic formula above:
(SEO revenue – SEO costs) / SEO costs x 100 = ROI
To break that down with an example, say your company invests $10,000 per month in SEO and you average $60,000 per month in organic purchase revenue. The formula would be:
($60,000 – $10,000) / $10,000 x 100 = 500%
This means you earned 5x the investment in SEO. That’s great!
If your business is not ecommerce-based, you may need to assign value to the leads you bring in. To do that, use this formula:
Total Revenue from Leads / Total Leads Generated = Lead Value
Once you know the lead value, you can multiply that by the number of organic leads you bring in to get a lead ROI.
It’s important to remember that SEO is not an instant-results channel. Establishing a positive ROI can take some time, so it’s crucial to partner with reputable providers who know what works well and will tailor your strategy to your business goals.
If you’re ready to increase your SEO ROI, let’s have a conversation.
How to Calculate PPC ROI
Calculating the return on investment of your paid media campaigns (PPC, social media, and programmatic) also follows the standard formula:
(Campaign Revenue – Ad Spend) / Ad Spend x 100 = ROI
Breaking this down with an example looks like this: your company spends $400,000 per month on paid media campaigns that generate $800,000 in revenue. Your ROI would be:
($800,000 – $400,000) / $400,000 x 100 = 100%
Note, if your business is lead generation-based rather than ecommerce and lacks revenue to track in a tool like Google Analytics, you may need to calculate “estimated revenue” which would look like this:
Total Leads x Lead Conversion Rate x Average Deal Value = Estimated Revenue
Once you have estimated revenue, you can replace “Campaign Revenue” in the formula above with it to get an estimated ROI.
In addition to ROI for paid media campaigns, you may want to also consider Return on Ad Spend (ROAS), Customer Lifetime Value (CLV), and Cost Per Acquisition (CPA) as metrics to help determine the effectiveness of your campaigns. If you need help understanding these metrics or setting up campaigns to increase them, book a meeting with us.
Summing It All Up
Calculating ROI is important for understanding the effectiveness of your overall business strategy, as well as specific marketing efforts like SEO and paid media campaigns. By regularly analyzing and refining your approach, you can maximize returns and ensure smarter, data-driven decision-making for sustainable growth.
