ROI stands for Return to Investment, meaning return on investment. This indicator shows whether a specific investment was profitable. It is often used, e.g. in Google Ads advertising campaigns or positioning. To calculate it accurately, we need the value of revenues and costs, and the final result is expressed as a percentage.
Such calculations are used by both Internet and traditional marketing specialists. Referring to Internet activities, it is most often used in Google Ads campaigns due to the popularity of this platform in e-business.
How to calculate ROI?
As already mentioned, in order to calculate the ROI, it is necessary to know the exact value of revenues and costs related to a given campaign. In order for the result of our calculations to reflect the real situation, be reliable and clearly define whether the given activities were profitable, the expenses include not only the costs related to conducting the marketing campaigns themselves, but also costs, e.g. production and transport of a specific assortment or taxes. This is especially important for such accounts.
Moving on to the calculations themselves, in order to measure the ROI, the first thing to do is to subtract the costs from the profits. Divide the result obtained in this way by the costs, and then multiply the whole by 100. In this way, we obtain the result expressed as a percentage. What does this mean in practice? Let’s assume that our ROI is 65% – this means that each zloty brings a return and profit of PLN 0.15.
ROI = [(INCOME – COST) / COSTS] 100
ROI vs. ROAS
When talking about ROI, it is also worth noting ROAS, i.e. Return of Advertising Spend. The ROAS measure calculates the profitability of advertising activities. To get the result, we need accurate data on the amount of revenue and expenditure on advertising. We calculate this coefficient according to the formula:
ROAS = (INCOME / COST) 100
Turning to the differences between these indicators, first of all, it should be emphasized that they differ in the accuracy of the measurement. When calculating ROI, we get the value of the total profits from a specific period, while ROAS gives us profits only from specific advertising campaigns and similar actions. The return on advertising spend does not include many significant production or transportation expenses. ROAS focuses only on a specific aspect of profits, if you want to accurately measure real revenues, we recommend focusing on ROI.
ROI calculation and conversion tracking
To analyze the ROI of your Google Ads campaigns, you also need to set up conversion tracking. How to do it?
First, you need to create an action that will convert.
Second, you’ll need to set up a conversion tracking tag, which is the site tag with the event snippet. You can do it yourself or use Google Tag Manager.
After performing these actions, the owner will start getting information about the conversion and the ads that initiated it. This will allow you to calculate the return on investment not only for entire campaigns, but also for specific groups of customers.
An additional advantage of conversion tracking is its usefulness during remarketing. It allows you to target relevant ads to people who visited the store or added individual products to the cart, but ultimately did not make a purchase.
Conversion monitoring is very useful (you can safely admit that it is even mandatory) not only during Google Ads campaigns and ROI calculation, but also during many other internet marketing activities.
ROI – why is it so important?
ROI is one of the most effective and valuable methods of researching the profitability of a given investment and is widely used in marketing. It allows full insight into expenses, most often related to Google Ads campaigns or positioning, and the ability to determine the profitability of the action. The calculation of this coefficient informs the owner of the online store what real profit the campaign brought him. It is also conducive to increasing the effectiveness of activities and sales efficiency, as it helps to better allocate the budget for marketing campaigns. Its advantage is simplicity: it is a factor that is very easy to understand and calculate, and at the same time very accurate.