Every effort made by a company must be measured in terms of conversion and results obtained from the amount invested in it and that is exactly what ROI does. What is Return on Investment (ROI)?, The acronym ROI comes from the acronym “Return On Investment“, this is a financial indicator that measures the profitability of the company comparing the profit obtained with the investment made, that is, this tool allows to know the performance that the company has financially.
When executing digital marketing campaigns it is necessary that each action is planned so that it is possible to determine the profits obtained with each advertisement or action, compared to the amount invested in these.
The ROI will let you know the rate of return on your investment. The higher, the more profitable our campaigns will be.
Not all campaigns are the same, so you need to know and determine which elements or indicators are vital for your measurement.
These indicators can serve as a guide to begin the measurement plan that will lead you to determine the ROI of your investment and thus see how you are doing in your digital campaigns.
It is one of the most useful metrics that should be known about a business. It is essential since it provides information on whether there is monetary gain or not through the investment that is being made.
What is Return On Investment or ROI?
As always we start with the definitions. Let’s start with the classic one, from Wikipedia:
“Return on investment (ROI) is a ratio between net profit (over a period) and cost of investment (resulting from an investment of some resources at a point in time). A high ROI means the investment’s gains compare favorably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments. In economic terms, it is one way of relating profits to capital invested.”
Look at this definition from Investopedia:
“Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.”
Sounds a bit dense, right?
But look at this one from Post Journal:
ROI or return on investment is the economic value generated as a result of performing different marketing activities. With this data, we can measure the return on investment.
Having seen this, what conclusions can we draw?
The ROI helps us see if a marketing action we have carried out has been profitable or not.
If I spend 100 $ on an advertising campaign but it “returns” 400 $ in sales. First, it seems profitable, right?
But if instead of 400 $, sales had only amounted to 100 $. It would be clear that the campaign would not have worked. That is what helps to see the ROI: the profitability of each strategy.
What is the use of ROI?
Knowing the ROI of investment allows us to know its profitability and thus, for example, to know if the investment is profitable, how much it offers us for our money, and how attractive it is compared to other investment alternatives.
We can use the ROI to calculate the return that investment has had; for example, the profitability that a company has had in the period, that has generated a product, or that has allowed us to earn a financial asset.
But ROI is generally used to calculate the return that can be earned with an investment; for example, the profitability that can be earned with an investment project such as the creation of a new company or the launch of a new product, since by letting us know if an investment is profitable and how much it offers us for our money, what The ROI ultimately allows us to know whether or not we should invest in it.
Why is it a mistake not to measure and what to analyze?
As a general rule, we could say that everything that is not measured is not controlled. If we do not measure the ROI of our actions, what we do is make decisions under assumptions.
And that doesn’t usually end well.
But also, you have to value the ROI taking into account an idea: not all that is invested is money. Is it worth your time?
Not all investments made in a business are always economic. If you are a freelancer who has just started, it is normal to spend more time than money. But that does not mean you should not measure.
For example, imagine that performing a certain action costs 100 $, but in 5 minutes you already have it working. Now compare it with another one that costs 20 $, but that involves you working all week on it.
Will it be worth it?
To know that we have to measure. 😉