ROI is the acronym for “Return on Investment”. It is a metric used to find out how much the company earned through its investments. To calculate the ROI it is necessary to raise the total income, subtract the costs from these and, finally, divide that result by the total costs.
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What is ROI? Learn how to calculate it
We always talk here on the RD Station blog that, for a long time, the results of advertising campaigns were analyzed based on conjecture.
Digital Marketing , however, brought a series of metrics that allow you to know precisely the efficiency of your investments.
One of the best known indicators is the Return on Investment (or ROI, abbreviation of the English term Return on Investment).
As the name itself suggests, the ROI allows you to know how much money the company loses or earns with the applications made in different channels.
In this post, you will learn what ROI is, why this metric is important for your business, and how to calculate it.
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The ROI is an indicator that allows you to know how much money the company lost or earned with the investments made (in paid advertisements, new tools, training, etc.).
In this way, you can know which investments are worthwhile and how to optimize those that are already working so that they perform even better.
The metric is important because it allows you to evaluate how certain initiatives contribute to the results of the company.
In the same way, based on ROI, it is possible to plan goals based on tangible results and understand whether or not it is worth investing in certain channels.
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How to calculate ROI: formula to achieve it
There is a simple formula to calculate ROI, which consists of:
Example of return on investment calculation
Imagine that the profit or net profit of your company has been $100,000 and the initial investment was $10,000. Using the formula above, we have:
- ROI = (100,000 – 10,000) / 10,000
- ROI = 9
In this purely illustrative example, the Return on Investment was 9 times the initial investment. You can also multiply the result by 100 to get it as a percentage (in this case, 900% return).
Why is ROI important?
ROI is an effective indicator when it comes to calculating the return of an action and can be applied to all investments, from those made in marketing campaigns and events, to improvements in the company’s infrastructure, to name a few examples.
When evaluating your company, investors will also look at the ROI, since it is essential to know how much you will earn to know if the investment is worth it.
Being attentive to this indicator also allows the company to plan its goals based on possible results to achieve, observing previous performance.
You can also identify the time that investments take to bring a return.
Also keep in mind that your company must understand what ROI means to itself and how the metric influences its objectives. Draw realistic metrics and constantly monitor them.
A tip to multiply your ROI: Conversion Optimization
How are your website conversion rates? Whether you have answered that they are satisfactory or that they are bad, you should know that there is always room for improvement.
And to improve them based on solid information, you must follow some CRO (Conversion Rate Optimization) precepts .
The most immediate benefit of the CRO is, as the name already says, the optimization of the conversion rate , that is, the improvement of a page -or even of an entire website- so that it generates more conversions from the same volume of traffic.
But what is the relationship between CRO and ROI? Where do the two pieces fit together?
Every day that a bad page, ad or Landing Page is on the air, money is lost. Ask yourself the following question: “how much would you earn in a year if you increased your conversion rate by 25%, 50% or 100%?”.
Optimizing the conversion of your pages, ads, email campaigns , blog posts, posts on social networks and other Digital Marketing actions means generating more results, which directly impacts ROI.
Some benefits of the CRO and how he himself can improve the Return on Investment in Digital Marketing of your business are:
Increased profit:Not only does the billing increase, but also the return on investment is greater, since it uses the same structure to bring more results.
More budget for traffic:
Combining traffic growth with CRO is very powerful for businesses. By generating more money to invest in traffic, you also get more conversions, you generate more money, you can invest more in traffic and so on.
Greater maneuver for CPCs (Cost per Click):
By generating more conversions and sales, you have more money to pay for visitors with paid ads. Thus, you have greater bargaining power in Google auctions, for example.
And that can make life difficult for your competition, raising the value of the auctions and making them pay more for the CPC, which only increases your distance in relation to the competition.
Optimize in Facebook Ads and achieve a higher return on investment
The speed and ease of creating new campaigns and the speed with which the results appear – especially when we compare these paid actions with organic channels – are great attractions that make Facebook Ads an accessible opportunity for anyone who wants to start advertising their product or service. .
However, it is because of this facility that we often find people who did not achieve the expected result in these channels, and therefore do not believe that a new investment can have a positive return.
This happens mainly due to the lack of alignment of this investment with the company’s Marketing strategy, which leads to non-optimized campaigns and without clear objectives.
In any case, it is necessary to understand that ads do not sell by themselves: it is necessary to understand the dynamics of these tools, the profile of the target audience present in each channel and the optimizations and good practices that will make a difference in the results.
In this section, we bring you some strategies that we use in RD Station and that you can use to know how to advertise on Facebook (by optimizing existing campaigns) and obtain a higher return on investment (ROI).
Tip 0: Use Facebook Power Editor
Power Editor is a Facebook ad management tool that allows you to perform various actions quickly, such as creating, editing and duplicating campaigns, and making bulk changes.
We consider using Power Editor a prerequisite for being able to work with Facebook Ads more efficiently and productively – so much so that we call it Tip 0 here.
With Power Editor , everything you create and edit remains offline , that is, to apply all the changes to your ads you must upload the changes through the tool itself, as in the example below:
To start using Power Editor , go to this link .
If you use multiple Facebook ad accounts, we recommend using the Facebook for Business platform , where you can more easily manage your accounts, access Ads Manager, Power Editor, and all your Pages.
1 – Install the Facebook Ads pixel
The Facebook Ads pixel is a small line of code that you must install on your website to obtain information and perform actions, such as:
- Count the number of conversions made from Facebook Ads campaigns;
- Create a retargeting list, that is, every time a person who is on Facebook and visits your website (this is a lot of people) Facebook will have this information and will allow you to display ads to all those people within the network;
- Create a list of similar public (Lookalike Audience). Based on the list of people who have visited your website, Facebook will search for other people with a similar profile, thus expanding the audience of your ads.
Therefore, to increase (and by a lot) your results and decrease the cost per Lead, it is very important that you have the pixel installed.
To see that code, go to your Facebook for Business account, go to the menu button at the top left and find in “all tools”, in the “Assets” section, the “Pixels” option, as shown in the next image.
To go directly to the “Pixels” tool, enter this link .
Already in the Pixels window, select “Actions” and click on “View pixel code”:
With the code in hand, the technical part of the installation begins. At this time, instead of doing the pixel setup directly in your code, we strongly recommend using Google Tag Manager . It is a Google service in which, from a single code, you can add several others, including the Facebook Ads Pixel.
In case you have access to the website’s code and want to install without Google Tag Manager, copy the pixel code and place it between the <head> and </head> tags of your website’s source code.
Advice!
To check if the pixel is installed correctly, there is a plugin in the Google Chrome browser called Pixel Helper. With this plugin you will be able to know if the pixel is installed correctly, how many codes the website has and what is the pixel ID.
2 – Do not try to sell to an audience that does not know you
Many companies think that because they are paying, to generate traffic to an offer, they should focus directly on the sale of a product, that is, direct all the ads to a product or service page.
It happens that not all people are at the time of purchase. As Chet Holmes shows in his book The Ultimate Sales Machine, only 3% of your potential audience is actively searching for your service:
What we recommend is to align your online advertising purchase strategy with an Inbound Marketing strategy , making offer announcements for people who are not yet at the time of purchase.
To fully understand the process of attraction, conversion and relationship, I recommend you read this post:
You can do this by offering something of value to those people, such as eBooks, webinars, free tools, templates, etc. In exchange for the offers, people will give you their information – such as name, email, company, position, segment, etc. – that you will use to qualify them and maintain a relationship.
With this information in hand, you will be able to nurture these Leads and make them reach the moment of purchase more quickly.
If you already have a Lead base, we recommend at this time to start a relationship through Facebook Ads, searching for those Leads on Facebook and creating a list from them.
How it works: You are going to create a Custom Audience from an email list. After loading this list, Facebook will see which of those emails are associated with one of its users and will create a segmentation for which you can display ads.
At RD Station, a large part of our budget for sponsored ads is dedicated to ads focused on generating Leads to attract new users. This allows us to increase our database and create another type of relationship, also increasing the chances of closing a sale.
3 – Do not make fan acquisition the main objective of your strategy
Many people are impressed by some common numbers in Web Analytics: number of pageviews, Twitter followers, Facebook fans, Youtube views, etc.
This type of metric is usually good for the ego. The head of Marketing gains credibility and admiration in the company and everything seems perfect.
Although an essential point is missing: how much does it contribute to sales? In the end, selling is the only activity that effectively brings money to the company. Everything else is cost.
One of the great advantages of Digital Marketing is its high measurement capacity, and not using it correctly can be considered a waste.
Speaking of Facebook Ads, a common mistake we see is when companies focus a large part of their budget on fan acquisition, that is, on increasing the number of “Likes” on the page.
It is clear that the amount is important, since this serves as social proof and transmits credibility to many people who do not yet know the company. It happens that, as we said before, focusing on these metrics will not be something that will directly bring a return on sales.
Another factor here is low organic reach: when you share something on your company page, this update will not be displayed to 100% of your fans. On the contrary, it will be displayed for a very small portion, making you have to pay to reach more people.
The recommendation, in this case, is to focus the ads on “conversions”, as shown in the image below. This is because the final metric (conversions) actually represents something that will have a financial impact, either immediately, when the ad is for a product, or indirectly, when the focus is Lead generation.
With this objective, you will be able to show – and verify – the ROI (return on investment).
4 – Promote blog posts to increase the volume of people on your retargeting list
Because it is an indirect offer with low competition, promoting your company’s blog posts is a good strategy to get traffic at a low cost per click.
With this type of campaign, you drive traffic to your blog and connect those people to the Facebook Ads Pixel (as we mentioned in tip #1). This will cause them to be included in your retargeting list, which you can use as a target audience for your campaigns.
One piece of advice that comes out of this is to go to “ Audience Information ” and find out more about your audience, such as the pages these people like, their location, among other things.
In the image below, an example of the pages that people who visited the RD Station website like.
5 – Track all Facebook Ads traffic using URL Builder
As we said before, a great advantage of Digital Marketing is its ability to measure. Every action carried out can be measurably analyzed in the results.
Something that currently happens with most web analytics tools, including Google Analytics, is that they do not distinguish between traffic from Facebook ads and organic traffic, that is, it does not come from a paid channel.
To avoid this situation and be able to correctly measure your Facebook Ads campaigns, we recommend the use of URL Builder, a Google resource that allows you to track the origin of traffic in a personalized way, and thus make it easier to analyze the results.
6 – Monitor the Leads generated through Facebook Ads in your sales funnel to verify that they are generating ROI
The Facebook Ads manager is an excellent tool to follow the performance of your campaigns (costs, budget, reach, etc).
It happens that to do a deeper analysis of the results that really cause an impact on the company, you will need other tools – such as Google Analytics, which is used to have greater insights about your site visitors, and a Marketing Automation tool such as is RD Station , to foster a relationship with Leads and analyze the sales results obtained by each campaign.
RD Station can be used to have a complete vision of the sales funnel and some more data about the Leads, such as what phase of the purchase they are in and their evolution in the funnel over time.
7 – Analyze everything related to the campaign
This should not be a recommendation, but a prerequisite for everything in Digital Marketing. We have already seen on several occasions campaigns that fail due to errors that could have been seen with simple tests. In the case of ads it is even worse, because it is wasted money.
Regarding this, it is always interesting to do a double-check (second verification) to confirm if the route of the campaign strategy is going to work and verify that the user reaches the goal.
Before you publish an ad or increase your Facebook Ads budget and start investing more, think about the whole strategy and what will happen after the Lead clicks on your ad. Some things to check:
- Is the ad targeting correct?
- Are there spelling errors in the ad or on the pages the Leads will go to?
- Is the Landing Page (page to which the visitor is taken by the ad) working?
- Are the texts conveying the value proposition of your offer well?
- Where are the Leads going after completing the form?
- Is the integration with your Email Marketing software working?
- Is there an automation flow configured to maintain relationship after the conversion of the visitor into a Lead?
How to assemble a report to prove ROI
Imagine that you are an employee of a company or an agency and you need to prepare a report to present the results of Digital Marketing actions and strategies to the Board of Directors of your company or to a client.
You can spend hours and hours making a huge multi-page report, stripping pretty much all the data you can get from Google Analytics .
Even so, it is likely that, when presenting your report, it does not make much sense, and the Board of Directors or clients will hardly understand the meaning of all the data shown.
Therefore, we can extract 4 lessons about mounting reports:
Data and information are different: it is not worth using all the data you have available if it does not make sense for your company or client.
More concise reports can also help deliver more relevant information, but they certainly do not guarantee the presentation of outcome metrics. Mainly if, at the end of the presentation, the following questions were not answered: “What do I do with this? What are the next steps?”
Reports do not exist just to test results, but to direct the next steps : the size of the report and the time it takes to be done are not determinative for its relevance, and a one-page report that took an hour to complete ready can deliver much more information than one of 50 that took 8 hours.
What really matters is that the report delivers value and importance, meeting the demand of the company or the client.
The report should be focused on your audience and the goals that matter to them: it is useless to ask about access if you do not know how to say how much you sell, or what you need to sell more or generate a higher average income. Likes, pageviews and impressions are important, but they are not business metrics.
Vanity metrics do not keep a company running: branding alone does not serve to keep a company open. If you have great branding but don’t turn it into money, that can be dangerous for your business.
With those four points we already know much more about reports. But we still need to know how to make them. Therefore, we separate six steps to mount reports that test the ROI.
Define the audience
The first step is the definition of the public. Who am I going to talk to? Are you the CEO of the company? Are you the marketing manager? Are you an analyst?
Depending on the audience you must have a different approach in the report. If it is for the Board of Directors, for example, it shows the profit contribution for the business.
Define what and why
After defining who the report is for, it’s time to define what it will show and what it will be for.
If you can’t determine that for each displayed metric, that’s a sign that the metric shouldn’t be there.
Define the periodicity
Now you must define the periodicity of the report. Generally something that works is to put the analysts most in touch with the data, followed by the coordinator, followed by the Board of Directors.
This is so because the analyst is in contact with this data almost every day, so he needs to monitor it continuously.
For the coordinator, this contact with the data can be weekly, so that he can see how far he is from the goals and where to attack to achieve them.
And, for the Board of Directors, the ideal is for the reporting model to be biweekly or monthly. In other words, it defines the periodicities by hierarchical level.
How to extract those metrics
It is only now that you should think about the tool to extract those metrics. The best known is Google Analytics, but there are others that can help:
Other tools you can use are:
- Marketing BI, from RD Station: It is already divided by hierarchy, with relevant and business metrics;
- Córtex Intelligence: is a company that works with big data. They work with the data and deliver information in a relevant way.
Assemble a template
Step 5 is to assemble a template, since you should not spend hours and hours to assemble a report. This process has to be quick, something you can do with ease. If you need help, experiment with this RD Station Digital Marketing Monthly Report Template .
Analysis
Next, we separate some forms of analysis that can generate insights :
- Action and reaction: What did I do and what did I stop doing that generated results? What did I not do that did not generate results?
- Correlation: What is the correlation between campaigns that have worked and those that have not? At what point should I go back to the campaigns that aren’t working and improve? Based on good experiences, what do I have to replicate?
- Benchmarking: where am I? What am I doing? It’s OK? Where can I get to?
After you’ve done this and understand where you’re at, set achievable and measurable goals that aren’t too far off so you don’t demotivate your team.
And, after setting the goals, put together an action plan. This should be the final result of the report. And this is where you need to get to: the action plan.
Now with all this content, you have the general ideas to create a report that demonstrates your ROI to your target audience.
If you need it, you can chat for free and without obligation with one of RD Station ‘s consultants to find out how our tool can increase your ROI and help generate more results in your company.
What to do when your ROI is negative?
When your ROI is negative, you must detect where the problem originated in your strategy and solve it in the shortest possible time. You can do this evaluation during the course of your campaign or when it has finished. The idea is to redirect your strategy and give a turn of the helm to reverse the results in your favor.
Let’s see some corrective actions depending on the moment:
Your campaign is running and has negative ROI
If the problem is with the acquisition, you can perform an A/B test and launch a complementary action with a different segmentation. You could also send a communication where you modify the design, the message and apply a promotion.
Your campaign ended and the ROI is negative
It is time to understand what has gone wrong and learn from mistakes to avoid them in the next campaign. For example, you could implement better lead capture tools to ensure the entry of new contacts using even new channels.
You could also review more carefully the segmentation of your next campaigns and actions, as well as the type of message you are going to use; promote your most profitable products or services to boost your billing, etc.
By applying different improvements, you will get your next campaigns to improve their ROI.
ROAS: How does it differ from ROI?
The ROAS (Return on Advertising Spend) or Return on Advertising Investment, performs the function that its name attributes to it. Their number refers to advertising-related expenses.
Its calculation is simple and direct: revenue / investment x 100 (to understand it in percentage). ROAS is the most important metric for the agency, since the client’s internal administrative costs are not taken into account in this analysis.
In other words, through ROAS, the agency has a genuine view of its client’s profits and investments in terms of advertising campaigns. If the client invested $1,000 in advertising and billed $2,500.00, his profit was $1,500.
Let’s understand the percentages:
ROAS = 100%
It means that the campaign has a profit equal to the investment.
Example: For every $1.00 invested, there is a profit of $1.00.
ROAS > 100%
It means that the profit is greater than the investment.
Example: In a ROAS of 700%, for every $1.00 invested, R$7.00 is earned.
ROAS < than 100%
It means that the profit is less than the amount invested.
Example: In a ROAS of 95%, for every $1.00 invested, R$0.95 is earned.
How to interpret the ROI and the results of your marketing campaigns!
Having the ROI value in hand and preparing a report presenting your results is not the end of the process. Now it is necessary to interpret the numbers and the information generated, taking into account the impact of each one on the business as a whole. And of course, in the midst of so many metrics, it’s easy to get stuck!
To make it easier, we have separated the analysis into 3 layers, from macro to micro, as we believe that this way we can find problems and opportunities more efficiently.
- The most complete analysis refers to the business layer, whose objective is to expose metrics that prove the performance of your business as a whole.
- The second layer is the acquisition channels, which divides the results between the acquisition sources to understand and optimize the specific channels.
- Finally, we have the campaigns layer, where the results of your frontline actions are interpreted, whose performance will be developed in the macro results that are seen in the upper layers.
Why review campaigns individually?
The campaigns are the first line of your digital strategy, and their joint action leads us to have a good ROI in the layers above. What we indicate is, when identifying bottlenecks to act, always go from the macro (business layer) to the micro (campaign layer).
For example: by analyzing the marketing funnel of a certain business, we identified a poor performance in the conversion rate from Leads to Business Opportunities. Once this bottleneck is identified, we unfold which acquisition channels we are working better or worse for this metric.
As a result, it’s possible to optimize below-average-performing channels by identifying good and bad campaigns and then working to align them with best practices.
It’s also worth mentioning that when we talk about campaigns, we mean the number of conversions and how your automation and email campaigns contribute to converting Leads into sales and business opportunities.
The interpretation of the effectiveness of conversions, emails and flows can later be translated into scoring intelligence through Lead Scoring, scoring each action of the Lead according to its performance.
Conversion analysis and its role in generating leads and sales
By conversion we understand the contact points between a visitor and your company, where an offer is accepted with the delivery of data in the form.
This vision allows us to understand where we obtained the greatest results in lead generation and sales, as well as the effectiveness of this relationship. With this, it is possible to assign financial values to each conversion, multiplying the average ticket by the number of conversions.
This work ultimately delivers the ROI of each different conversion.
Ways to interpret conversion performance beyond ROI
Now that we’ve talked about what’s important to analyze, let’s talk about how it can be interpreted. Measuring the effectiveness of conversions can be done in two ways:
1. Measures the proportion of business opportunities and customers who had a certain behavior before reaching this stage
The purpose of this form of analysis is to understand to what extent this conversion helped the prospect’s evolution in the purchase process. These data can be found through the relationship between the number of opportunities / sales and the number of Leads that performed a certain action.
2. Measure the proportion of leads that had a specific engagement with the last action before becoming sales and business opportunities
With this form of analysis, we will understand the influence of this conversion on the lead’s decision-making when making a certain final conversion, such as buying your product / service.
This data is more difficult to find without the right tool, but it is calculated by the relationship between opportunities / sales and Leads that had a certain commitment as the last action before the final decision.
In summary, campaigns are the first line of your digital strategy, and the sum of your results will impact all levels of your business, as well as being a great opportunity to take advantage of ROI by replicating best practices.
Do you want more useful information to demonstrate the ROI of your digital strategies? Watch this webinar that is part of our Latin American Week of Digital Marketing.
Now, do you want to take advantage of a tool that helps you improve your ROI, through the efficient application of your Digital Marketing strategy? Fill out the form and start using RD Station Marketing for free now.
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Frequent questions
What is ROI?
ROI is the acronym for “Return on Investment”. It is a metric used to find out how much the company earned through its investments. To calculate the ROI it is necessary to raise the total income, subtract the costs from these and, finally, divide that result by the total costs.
Formula to calculate ROI
To calculate the ROI you must know previously: the profit obtained from your sale and the investment you made to obtain that sale. ROI = (Profit – Investment) / Investment