6 ROI Advertising Fundamentals

Resources and information for measuring the ROI of your campaigns.

ROI Advertising

One of the most important metrics for digital advertising is ROI.

What does ROI stand for? Return on Investment. You’ve likely already heard ROI used in many other contexts, such as investments. Well, for a business, advertising is also an investment. Let’s take a look at ROI advertising and why it matters.

ROI is often a KPI (key performance metric). It’s a major way to describe and assess the success of your campaign. If you spend $500 on paid advertising and bring in $1,500, your ROI is 200%. You made 200% more money than you paid. In the real world, the calculations usually aren’t that simple.

ROI works in a few ways:

• Comparing different channels. You might have an ROI of 200% on email but 500% on paid advertising. So, you would want to put all your money into paid advertising unless you had over-saturated the market.

• Comparing industry performance. Your industry might generally have an ROI of 150% on its advertising spend, but you may have only an ROI of 100%. So, you might need to improve your advertising.

• Comparing past performance. Your ROI might be steadily going down, which indicates market saturation. Your ROI could also be going up very fast, which indicates room for growth.

Essentially, ROI on its own doesn’t tell you anything unless it’s disastrous or extraordinarily effective. ROI is more frequently used as a vector for comparison. Regardless, ROI is incredibly important. The issue is that ROI is also very hard to track in digital marketing because you can’t always attribute sales to the right channel and because many channels interact.

1. ROI in Digital Marketing

Why is calculating ROI in digital marketing so important?

First, digital marketing spending can grow out of control. If you’re not tracking the right KPIs, you might not know which strategy is working. That can lead you to throw a lot of money after ineffective forms of advertising.

Second, you need to make decisions on digital marketing very quickly. If you’re not updated on your information, you might not see that you need to change your strategy; you might not see your advertising campaigns going south.

Third, a digital marketer has a lot of options. You have many channels through which you can advertise. You can’t always determine which is best without the right data.

Calculating your ROI advertising tells you how your campaigns are performing. It tells you how much you can spend, how much you can expect to grow, and where you should spend your money.

Without knowing your ROI, you don’t know whether you’re just throwing your money away or whether your advertising dollars are being put to the best use.

2. Marketing ROI Calculator

Finding a marketing ROI calculator isn’t hard. Marketing ROI is pretty simple. The marketing ROI formula is just:

ROI = Revenue – Advertising Cost / Advertising Cost

You can find multiple calculators here. But if you have the right advertising platform, you won’t need to know how to measure ROI advertising or have a marketing ROI calculator. Most advertising platforms will give you information about your ROI right off the bat, so you can make the decisions that you need to make.

There are a lot of challenges in digital marketing because you can’t always track your conversions very effectively. You could also be calculating the ROI advertising for dozens of platforms. And because the platforms react to each other, it’s difficult to always assess where the best ROI could be. But you need to know your ROI if you’re going to improve your marketing campaign and enhance your marketing strategies.

There are other similar calculators, such as the ROAS (return on advertising spend) calculator. But you should be aware that the ROAS calculator differs from your ROI calculator and shouldn’t be confused. Both metrics are important, but they’re also used to assess different things.

3. ROI and KPI in Digital Marketing

You’ll probably see both ROI and KPI in digital marketing. These two work together but they’re not the same thing. Essentially, ROI is a type of KPI.

There are other KPIs (key performance indicators). As a marketer, some major KPIs could include traffic, leads, converts, clicks, and more. A KPI might be retained customers, customer acquisition, cost of customer acquisition, or customer lifetime value.

So, ROI and KPI are inextricably linked, but they aren’t the same. ROI is only one type of KPI. For many organizations, especially budget-conscious organizations, ROI is the most important KPI.

ROI advertising and other KPIs indicate how the marketing campaign is working. A company always needs to select the KPIs it wants to track based on its goals. A company shouldn’t be tracking too many KPIs. While it may track hundreds of metrics, only a handful of KPIs should be used to direct the strategy.

If a company uses too many metrics as KPIs, it will start pulling in too many directions. It will lack the focus necessary to improve its marketing.

4. Marketing ROI Examples

What are some common marketing ROI examples? Let’s consider an app development company looking at the ROI for its different campaigns.

On Facebook, it has spent $100 and achieved $1,000 in sales. Facebook’s ROI is 900% for them. That’s a good ROI. But they see that the ROI for Facebook advertising is closer to 1,800% within their industry. Consequently, they now know that they could be doing a lot better. They need to accelerate their campaign.

On Google Ads, they have spent $100 but received $2,000 in sales. This ROI advertising is very high. 1,900%. They don’t need to do much to Google Analytics. They might want to pump more money into their analytics. If their ROI goes down, they know they were spending the right amount of money. But if their ROI increases, they’ll know they can continue to expand.

So, ROI advertising gives the company information it can use to make educated decisions. If the company sees its Facebook ROI sharply going down, it knows that something is wrong. If its marketing ROI is better amongst certain demographics, they know that they should be targeting those demographics more frequently.

ROI is a very simple metric that nevertheless tells a marketer a lot. And that’s what makes it such an important key performance indicator, as well as an overall powerful metric.

5. What Is A Good Marketing ROI?

You can find a lot of marketing ROI benchmarks. But truthfully, none of them matter unless they are very specific. B2B marketing ROI benchmarks will be substantively different from B2C benchmarks. A startup organization will fare differently from an established company. Digital marketing ROI benchmarks tend to change dramatically.

What is a good marketing ROI? In general, it’s better than you have done before. If you are making money, then your only real concern is improvement. You are essentially competing against your past performance.

You can look at companies that are close to you. If they’ve published their ROI data, you can compare it. But again, these comparisons are very difficult to run apples to apples because there are so many factors, including size, products, customer demographics, and industry. Your marketing ROI will vary significantly depending on which platforms you use and who you are targeting with advertisements.

Marketing ROI is usually a comparable KPI for this reason. Usually, marketers are comparing themselves to their past performance and seek change. What you know is that companies are getting an ROI; they are getting a return on their investment, and therefore any marketing should be profitable. If your marketing isn’t profitable, something has gone wrong; it isn’t targeted correctly, or there are inherent flaws in your product or service.

6. Average ROI For Advertising

We can look at the average ROI for advertising: it’s $1.09 on the dollar. Online ads are $2.18 on the dollar. These are calculated the same way. In general, online ads are the most valuable form of marketing. But this means very little for a specific company, for the above reasons, and many companies can make much more (or struggle to make that much).

Knowing the general ROI for advertising can help your organization target itself. You know you should at least make 118% ROI advertising on your campaigns. If you aren’t, something has gone wrong with how you’re conducting your marketing campaigns. You may need to find your audience, or you may need to branch into other platforms.

But other than that, the average ROI advertising will not describe what is available to you. That’s because industry, size of the company, and even your previous advertising matters. It should also be noted that the average ROI can be expressed in “short term” and “long term.” Paid ads and social ads are usually short-term, while magazine ads, print ads, and so forth tend to be a little longer-term (but much more expensive).

Ultimately, ROI advertising is just another KPI that you can use to determine your organization’s performance. It’s often the most important, but it isn’t the only important one, and it isn’t the only thing you should be tracking. By understanding your organization’s relationship with ROI advertising, you can better understand and optimize your organization’s advertising strategies.