What is the return on investment (ROI)

According to BEAUTYPHOON, Return on Investment (ROI) describes the relationship between investment and profit. The value should show to what extent an investment has paid off. In online marketing, for example, the financial success of a campaign can be traced.

The ROI in online marketing

With regard to online marketing, the ROI refers to the relationship between the advertising costs and the profit generated with them. This allows the financial success of advertising campaigns to be measured precisely. The prerequisite is of course that the necessary data is tracked, i.e. the conversion rates.

The ROI is calculated using the following formula:

Profit / sales x sales / total capital x 100%

In online marketing, this calculation is also known under terms such as ROMI (Return on Marketing Investment) or – especially for search engine marketing – ROAS (Return on Advertising Spendings), since visitor behavior can be tracked with the help of web tracking. Therefore, this calculation is also a bit simplified, namely by comparing the advertising costs to the profit:

Revenue – total cost / advertising cost

Total costs include all activities or investments that were incurred for the product before it was sold. This includes manufacturing costs, purchasing costs or marketing costs, e.g. placing Google Ads ads.

Google Ads ad example:

In a shop, the purchase of products costs 3,000 euros, from which Google Ads ads generate a turnover of 5,000 euros. The expenditure for Google Ads amounts to 500 euros. This results in the following calculation:

5000 euros – 3500 euros / 500 euros = 3 euros

The value “3” means that you have achieved a net profit of 3 euros from a stake of 1 euro.

What role does the ROI play?

On the one hand, you can use the ROI to see whether the campaign was financially worthwhile, and on the other hand, it can be used to identify the positions that were particularly profitable or particularly cost-intensive within the campaign. You can adapt future campaigns accordingly.

With advertising measures such as Google Ads, the value can still be determined quite precisely, since the focus here is on the click costs (CPC). However, it becomes more difficult with the ROI for SEO measures. Here, the sales cannot be clearly attributed to certain SEO measures, as when clicking on an ad, since the success of the measures can only be determined over a longer period of time and the time, which is also associated with costs, is not included in the calculation.

For an entire online marketing campaign, however, it is quite possible to calculate the financial success with the help of the ROI, namely on the basis of a fixed budget, which is often set for such campaigns. If a customer’s path to conversion can be traced back to campaigns in this campaign, it can also be “booked” as an exact turnover. However, a realistic ROI can only be determined if:

– all marketing channels used within the campaign are included in the budget

– the path of the customer – the customer journey – is tracked

– it is clear what a conversion means in the campaigns

What is the return on investment (ROI)