When implementing marketing campaigns, businesses understand indicators such as CTR, CPC, CPM, etc., and need to know ROI. This is an important indicator that helps businesses measure campaign performance and profits on initial investment. Based on this indicator, companies can determine which advertising and marketing campaigns or channels are effective, thereby having appropriate adjustments to increase profits. If you do not understand the meaning of the ROI index and how to calculate and optimize this index in marketing, follow the following article by SOC LUA Agency to get the answer!
What is ROI?
It is the acronym for Return On Investment, which means profit return. It is an indicator used to measure the percentage of profit a business earns on the invested capital. Through this, businesses can assess the feasibility of a campaign and make the most optimal decision. In marketing, ROI is used to evaluate the success of marketing campaigns such as SEO, Content Marketing, or Email Marketing.
Unlike ROI in business, marketing ROI focuses on the profit generated from marketing activities. By understanding ROI, marketers can make the right decisions to optimize campaigns, adjust strategies, and allocate the budget appropriately. Tracking and measuring ROI helps businesses maximize profit through investments in their marketing campaigns.
Not only is it a measure of profit and campaign performance, but by calculating ROI, businesses can also assess the contribution of marketing campaigns to the company's overall revenue growth. Through this indicator, businesses can formulate the most appropriate marketing and business strategies to achieve the optimal profit goal.
The Importance of ROI in Marketing
ROI is not just a performance and profit measurement indicator but also a powerful tool that helps marketers make accurate decisions in budget allocation. When businesses understand the ROI metric and how to calculate it, they can reap the following benefits:
Evaluate effectiveness and allocate budget appropriately
By tracking and measuring this metric, businesses can accurately assess which advertising campaigns are delivering the highest results. By calculating the return on investment ratio, advertisers can determine which campaign is performing most effectively. From there, they can adjust the budget to focus on high-performing campaigns with the best ROI to avoid wasting funds. This helps businesses optimize their marketing budget effectively.
Optimize strategy
This metric provides an overview and a comprehensive view of investment effectiveness. It allows for comparison of effectiveness between different marketing campaigns or within the same campaign. With this information, businesses can identify the most effective strategies or activities to adjust for the highest performance. Through ROI, businesses gain insights into customer behavior and the effectiveness of marketing channels. Based on this data, businesses can adjust strategies, focus on potential channels, and optimize marketing activities to meet their goals.
Competitive analysis
By using ROI in marketing, you can analyze competitors and understand how they are operating within the industry to formulate appropriate business strategies. By analyzing competitors, businesses can identify areas or aspects that need improvement. This helps businesses uncover hidden opportunities for the brand and create effective marketing campaigns.
How to calculate ROI in marketing
The formula for calculating ROI in marketing
The formula for calculating the ROI of a marketing campaign is:
ROI = ((Revenue – Marketing costs)/Marketing costs)
If you want to calculate this index, you need to know the total revenue earned from the marketing campaign and the total cost of marketing activities.
The formula for calculating ROI in overall marketing is: ROI = ((Sales growth – Organic sales growth – Marketing costs) / Marketing costs)
In which, sales growth is the revenue earned from advertising products or services. Organic sales growth is the revenue obtained without the participation of marketing or advertising strategies. Marketing costs are the total costs spent to implement the marketing strategy.
The formula for calculating ROI in website SEO
With the formula for calculating ROI in website SEO, it is calculated as follows:
ROI = ((Revenue earned – SEO cost) / SEO cost) x 100%
To calculate this index, you need to know the total revenue earned from the website after SEO optimization and the total cost for SEO optimization of the website.
The formula for calculating ROI in Content Marketing
In the field of Content Marketing, ROI is calculated according to the following formula:
ROI = (Profit from content - Content production cost - Promotion cost) / (Content production cost + Promotion cost) x 100%
If you want to calculate this index, you need to know about the cost of content production, including the cost of hiring content writers, video production staff, hiring designers, website creation costs, etc. Promotion costs include advertising costs on channels such as Ads Google, Facebook Ads, etc. Profits from content include sales or revenue generated by posted content.
The formula for calculating ROI in advertising
To calculate the ROI of advertising (Google Ads, Facebook Ads), you need to set up a custom tracking URL with the ad conversion tracking code. Then you can calculate advertising ROI with the following formula:
ROI = (Revenue – (Cost of goods sold + Ads cost))/ (Cost of goods sold + Ads cost)
How to optimize ROI in marketing
Once you understand what ROI is in marketing, apply the following methods to optimize advertising performance:
Determine appropriate goals
Before implementing any advertising or marketing campaign, businesses need to identify and understand each campaign goal, including attracting customers to visit the website, increasing brand awareness, increasing conversion rates, etc. No matter what your goals are, you need to identify the results or goals to achieve to come up with an appropriate promotional strategy to help improve the maximum ROI.
Targeting the right audience
To improve your ROI, you need to ensure that your advertising campaign reaches the right audience. This will not only save you money but also increase your conversion rate. With advertising tools like Google Ads, and Ads Facebook, some options allow you to refine your audience based on criteria such as age, gender, behavior and interests.
Allocate the appropriate budget for each campaign or channel
If you want to improve ROI, test marketing channels: email, advertising, video marketing, social media, etc. Then, monitor and measure the performance of each channel to choose the appropriate marketing channel to help bring high conversion rates and have the best ROI. Not only do businesses need to choose the channel with the best performance, but they also need to allocate the appropriate budget. Businesses should increase the budget for highly effective advertising and marketing channels or campaigns and prepare a reserve budget to deal with risks.
Continuously monitor, measure and adjust
If you want to improve ROI, test marketing channels: email, advertising, video marketing, social media, etc. Then, monitor and measure the performance of each channel to choose the appropriate marketing channel to help bring high conversion rates and have the best ROI. Not only do businesses need to choose the channel with the best performance, but they also need to allocate the appropriate budget. Businesses should increase the budget for highly effective advertising and marketing channels or campaigns and prepare a reserve budget to deal with risks.
Continuously monitor, measure and adjust
The process of implementing advertising and marketing campaigns needs to be regularly monitored and measured to evaluate the performance of the campaign, thereby making appropriate adjustments. You can use tools to measure and analyze the effectiveness of advertising campaigns such as Google Analytics, Facebook Insights, etc. Thanks to that, you will have an overview of the advertising and marketing campaign and based on this data, businesses can adjust factors: content, budget, target audience to optimize costs and increase ROI.
By clearly understanding what ROI is in Marketing, marketers can optimize advertising strategies, improve performance and increase profits. If you know how to calculate and analyze this index, businesses can evaluate the effectiveness of the campaign to make accurate decisions in allocating appropriate budgets.
Frequently Asked Questions
According to experts, ROI measurement in marketing should be done at least monthly and ideally weekly or daily for digital marketing campaigns. By monitoring and measuring regularly, you can evaluate the performance of the campaign while optimizing costs and targeting accurately to achieve the best results.
ROI is an important indicator used to measure the relationship between profits and initial investment costs of a business. If ROI grows, the business can recover capital faster. In the case of an ROI of 2:1, the business is likely to only be able to recover capital. Because the cost of production has lost up to 50% of the product cost.
This means that businesses with product costs below 50% of the selling price often do not promote marketing too much and have low ROI. Meanwhile, businesses with the cost of goods sold accounting for more than 50% of the selling price need to invest in marketing to offset high production costs. The ideal ROI for businesses is around 5:1 and it can fluctuate depending on each business's production costs.
