ROI is a financial metric based on the relationship between money earned and money invested in a specific action. It means “Return on Investment” or “Return on Investment”. This return calculation is widely used in marketing to validate investments made. Marina Lamb Mar 2, 20 | 12 min read The only way to correctly choose the investments that a company should make is to understand well which are the strategies that give results and are able to bring the business closer to its objectives. But with so many customer acquisition and loyalty tactics, how do you know, specifically, what works best for your business? It seems complicated, doesn’t it? But the answer is to calculate ROI accurately 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 will 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 Investiment”, Iceland WhatsApp Number List in Spanish Return on Investment. Through this indicator, it is possible to know how much money the company is making (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, new customer retention strategies, among others. In this way, it is clear not only which investments are worthwhile, but also how to optimize those that are already working, to have a better return.
ROI can be calculated in several areas, such as: Content Marketing ROI; ROI of email marketing; ROI from social media; ROI of campaigns in Google AdWords; ROI corporate blog; ROI de SEO; among others. Why is ROI important to the success of my business? As you can see in our ebook Marketing Digital 3.0 , 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, target audience, among other details. Therefore, controlling ROI is essential. Help answer some deep questions about your business, like these:What are the biggest sources of profit for the company? What are the most effective communication channels? Are the performance of the marketing initiatives as expected? Has the sales process proven efficient? Does customer service contribute to customer loyalty or is it falling short? Of course, it’s useless to expect to find detailed information just by looking at a specific ROI period , but it will give you a good direction on where to look. Then, using other important metrics and indicators .
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 facilitates the comparison between 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 business collects from sales. When calculating ROI for a specific area or campaign, remember to only use the amount raised by the chosen segment. For example, to calculate the return on investment for an ecommerce platform in your Email Marketing campaigns , the revenue value must represent only 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 ecommerce platform , the costs are represented by the amount paid to use the platform, the price of hosting the website , investments in paid ads, expenses with Internet, telephone and everything that be necessary.
How to evaluate the results of your business? To better explain this metric, let’s look at the fictitious case of the virtual store mentioned above. It all depends on the action taken, the quality of the planning, 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 do high ROI holdings have that can be replicated on others? Are the campaigns performing similarly to my competitors? Does your company have better results than the 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. What are the ROI limitations? Although the above calculation seems to be the solution to all your doubts regarding investments and marketing actions carried out by your company, keep in mind that there are limitations.
For example, when interpreting it: is an ROI of 5% good or bad? It depends! Read on and you will know how to interpret ROI. ROI does not take into account the duration of the investment If we talk about an ROI of 5% per day, it is a wonderful result. But if we talk about long-term investment, for example, 1 year, it is no longer such good news. ROI does not take into account fluctuations in value due to inflation The ROI calculation also does not take into account the increase (or decrease) of inflation. In other words, a 5% annual yield would be dissolved by rising inflation or other banking problems (taxes, tariffs, etc.). ROI does not take seasonality into account Another limitation of this metric is that its result does not take into account seasonality. If you use ROI to measure an investment in the medium or long term, you can get a positive result and think that everything is fine, but that is not true. Depending on the investment in question, that number may have been influenced by other factors masking negative results for certain periods. ROI calculation can be manipulated Finally, when analyzing the results it is very important to understand where the numbers used in the calculation come from. An entrepreneur can compare the ROI of two products by dividing the gross profit generated by each of them and considering the expenses of the marketing team as a cost.
Meanwhile, the finance team can do the same analysis using completely different numbers, for example, the net profit of each product as income and the total value of all resources used to produce and sell the product as cost. Because of this, anyone who uses ROI to evaluate an investment should make sure they know the source of the numbers used and that all calculations use the same standard. 5 challenges to using ROI correctly You may already be excited to start looking at your investments and figuring out where to put your energy into. And this is great! But before that, it is important to overcome certain challenges that can make it difficult to use ROI in your future strategies. Here are some tips! 1. Forget about vanity metrics ROI is just one of many indicators that we can use to better understand how a business is doing. However, in certain cases, ROI can point to more than well-known metrics. If that’s the case, what is probably involved is the use of what we call vanity metrics. They are great for making you feel good about the strategies used, but they do little to keep the business strong. For example, an increase in traffic to your site may indicate that the strategy adopted for that channel is working. But what matters in this case are conversions , such as generated leads , conquered customers, among others.
That data is only possible with careful monitoring of ROI. 2. Adapt quickly After spending so much time, energy, dedication, and a lot of teamwork, plus money, to launch a campaign, it can be difficult to change direction. But, if the results shown do not contribute to the development of the business, feel free to change the points that were found to be deficient. Whether it’s making big changes in planning or even abandoning once and for all that proposal that seemed like the ideal solution for a particular problem, it is important to adapt quickly. The ability to understand changing circumstances and react to them with speed is one of the most important characteristics for anyone who wants to use ROI information in the best possible way.