ROI: Return on Investment

What is ROI, or Return on Investment?

Return on Investment refers to the calculation to summarise how much money you "get back" from an initiative you spend money on. ROI is usually expressed as a percentage.

For example, you might want to know the "ROI" for an advertising campaign that you spent $100 to help you understand whether you should do a similar campaign in the future.

To calculate the return on investment of your $100 campaign, do the following sum: (Profit minus Cost) / Cost * 100.

If your profit from the campaign was $1,000, then your sum would be: ($1,000 - $100) / $100 * 100 = ($900 / $100) * 100 = 900%. Needless to say, 900% is a very good result for the ROI of a campaign!

Sometimes the difficult part is figuring out the profit you made and whether it was entirely attributable to the investment you made. This is why analytics is so important, and measuring your marketing efforts is so critical.

Typically, email marketing is a "high ROI" activity as the cost to send email is considerably less than it might cost to get an advert in front of the same shopper.

Example

An online store spends $500 on an email marketing campaign promoting a seasonal sale. The campaign generates $4,000 in sales revenue. To calculate the ROI: ($4,000 - $500) / $500 * 100 = 700% ROI. This means for every dollar spent on email marketing, the store earned $7 in return, demonstrating why email marketing is often considered one of the highest ROI marketing channels.