ROI in Marketing and How to Calculate It (With Examples)

By Indeed Editorial Team

Published July 6, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

ROI in marketing, or return on investment, is a business concept that focuses on how a company gets the most value out of its business expenses. This has particular significance in the marketing field because the primary goal of marketers is to help a company make money and spend money wisely. Understanding ROI and how it affects marketing can help you assess the financial viability of business investments and develop effective marketing strategies.

In this article, we discuss the meaning of ROI, explain how to calculate ROI in marketing, explore the importance of return on investment, and give some examples of ROI.

What is ROI in marketing?

ROI in marketing can also show up as MROI and ROMI. These all reference the specific return on investment a business expects from its investments in marketing and advertising. ROI compares the revenue and benefits of marketing campaigns with the overall cost of the campaigns. Marketers use the return on investment to identify cost-effective ways to increase a company's earnings. They use these numbers to explore the overall returns of specific marketing efforts, document and assess the effectiveness of a campaign, and compare it with overhead costs.

In marketing, measuring ROI requires using a percentage to show loss or growth caused by a marketing campaign. Higher ROI percentages show the efficacy of each dollar spent on marketing, resulting in a high amount of revenue. Low return on investment percentages shows a low revenue compared to the cost of a marketing effort. Companies aim to make more money than they spend on marketing.

Read more: What Is ROI? Understanding the Meaning and Calculation

How to calculate ROI

Calculating ROI for a business involves performing a few simple calculations for a certain project. After implementing a marketing plan and allowing it to take effect on sales, you can calculate the return on investment. Follow these steps to figure out the ROI for a recent campaign:

1. Select the correct formula

You can use two different formulas to calculate ROI. A simple ROI or a campaign-attributed ROI, which is also called an adjusted ROI. Simple ROI formulas act as a guide when comparing a business's marketing investments compared to their competitors. An adjusted ROI gives a more detailed overview of the success of marketing campaigns and their impact on a company's growth.

  • (Sales Growth - Marketing Cost) / Marketing Cost = Marketing ROI: This formula assumes all sales growth for a company results from marketing efforts and generates a comprehensive view of marketing impact. Marketers who account for organic sales gain more specific marketing statistics by considering their consistent average sales, or how much they make without advertising.

  • (Sales growth - Organic Sales Growth - Marketing Cost) / Marketing Cost = Marketing ROI: This formula considers three key elements to gain a more comprehensive look at revenue including total revenue, which is the total money made, including money earned with and without marketing, minus their costs. Gross profit, which is their total revenue, subtracting the cost of goods and delivery of products and net profit, which calculates the impact of specific marketing efforts.

  • (Retention Rate) / (1 + Discount Rate / Retention Rate) = Customer Lifetime Value: This formula shows the value of an individual customer relationship, assessing a company's long-term ROI, accounting for the change in the consumer lifecycle. Marketers use this data to inform future marketing and advertising investments.

Read more: What Is Roe vs. ROI (How They Differ and Examples)

2. Target a timeframe

Determining the time frame for data gathering provides relevant data to your interests. Measuring the success of a new campaign means allowing enough time for the advertising to reach customers and allowing them to act on the advertisement before gathering data to look for your ROI. Using data from the same business cycle as a targeted campaign for each of the figures you need to calculate provides consistent and relevant results for you to analyze.

3. Record marketing costs and measure sales

Gathering all the data for revenue and expenses related to your marketing project helps you calculate your ROI. An extensive set of data, like calculating the yearly marketing ROI, for example, may require collaboration with accountants, bookkeepers, and other departments. This gives you a better chance for making an accurate calculation. Smaller projects can be simpler, such as adding invoices from a single quarter to determine marketing costs and the resulting revenue. It's important to record these calculations. This gives you clear, accurate information on what influenced the ROI, and expands your dataset for future calculations.

4. Calculate these values to interpret growth

Calculating the values after selecting the formula gives you the resulting percentage for your company. Average marketing ROI largely depends on the industry. It can also vary depending on advertising methods and other factors. So it's important to do market research and put your ROI into context. If companies make five dollars on sales for every dollar spent on marketing, this is an overall positive ROI.

Related: What Is a Cost Analysis? (And How to Analyze Cost Benefits)

The importance of ROI for marketers

Marketing professionals rely heavily on data-driven metrics like ROI in decision-making about how to most effectively allocate their budget. ROI helps people involved with a project to understand if they're adequately allocating their resources. Higher ROIs show successful strategies. Marketing departments regularly track ROI on several campaigns in order to maintain these key insights:

  • Understanding their financial wellbeing: ROI helps business owners and marketers understand their profit. Return on investment in marketing provides an ability to give nuance to overall sales figures and revenue while showing which factors attract revenue.

  • Analyzing competitors: Professionals compare their marketing ROI to their competition to understand if they're efficiently using their revenue and to study new strategies. They also use this to understand the efficacy of their marketing campaigns compared with other businesses in the industry.

  • Prioritizing projects: Measuring ROI on different campaigns helps marketers identify which methods generate value so they can prioritize working on campaigns that offer more income for each dollar spent. ROI shows which projects lack enough revenue to make them valuable and allows you to reconsider your marketing strategies or which campaigns you might use for the company.

  • Selecting projects: Keeping records of ROI for separate marketing strategies helps identify patterns in which methods generate success. It can help marketers identify target audiences that can generate income and help refine their strategies while learning from past strategies.

Related: 10 Marketing Certifications to Help Advance Your Career

Examples of ROI

You can calculate ROIs by visualizing scenarios before collecting data. You can use examples of marketing ROIs to support your knowledge of the marketing projects in your workplace. Here are some examples of ROIs you can use:

Positive marketing ROI

As an example, assume a computer software company makes $5,000 in a month and spent $1,000 on marketing and advertising costs. They determine a baseline of sales growth of 10% of their earnings. This means $500 of that income was uninfluenced by marketing. The formula for this example is ($5000 - $500 - $1000) / $1000, which simplifies to 3.5%.

Related: 10 Types of Marketing to Explore (With Tips and FAQs)

Neutral marketing ROI

Companies can also have a neutral ROI, meaning it's equal to zero. If the same computer software company spent $200 on advertising in a month and made $200 in revenue, their formula is ($200 - $200) / ($200), equalling zero. This shows no losses or gains. If the same company's growth rate is 5%, and you wanted to calculate their adjusted ROI, the number is negative.

Negative ROI

Marketing costs can sometimes exceed the revenue generated with that campaign. Companies with a negative ROI lose money. If a software company spends $20,000 on marketing and has a 15% yearly growth in sales, then made $15,000 in the same year, they have a negative ROI. To use the formula for this example, first, calculate 15% of their yearly earnings. Then the formula works like ($15,000 - $20,000 - $2,250) / $15,00 = -$7,250. If you calculate this as a percentage, you see a marketing ROI of approximately 48.3%.

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