Return on investment in marketing

Return on investment in marketing

We give you how to calculate Return on investment in marketing Many investors and business owners want to calculate the return on investment to check the profitability of their projects and businesses. However, only a few of them can refer to the calculation of the expected return for the marketing campaigns carried out by the company, through which the return that the company will get for the money spent on the marketing campaigns of its products and services can be determined.

What is the return on investment in marketing?

ROI can be defined as a working principle, the purpose of which is to determine the returns of various activities.

ROI is a measure of business success, often expressed as a ratio to describe the return on investment.

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Investment returns benefits

Investment returns benefits

In fact, using ROI emphasizes the value of investing money always in the right context.

Therefore, the importance of calculating the return on investment goes beyond determining the ratio, but it can be used in various decisions within the company. ROI benefits include:

  • Evaluate the financial performance of the business:
    By calculating the value of the return on investment, it can be ensured that the company is using its money correctly. And they take advantage of the various activities they undertake to generate income. He can compare the actual value of the ROI with the expected value and make sure the ratios match as closely as possible. If there is a significant difference, it means that there is a problem with financial performance, which calls for changes.
  • Project analysis and financial decision making:
    It can also be used to monitor project performance to ensure that activities are carried out in a manner that contributes to return on investment. It is also possible to compare the expected results of different decisions, and the implementation of activities that provide the best return on investment. Thus the return on investment helps in making the final decisions that improve the financial performance of the company.

Advantages of return on investment

There are many metrics used in business by which financial performance can be evaluated. However, the return on investment in marketing remains one of the most important and important metrics. In addition to the benefits, it has a number of different advantages.

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The main ROI benefits include:

  • Ease of use:
    The ROI meter is very easy to use, it does not require a lot of input, it just requires the use of simple information and a result is obtained in the end. This way it can be used directly to track performance. The result is also clear, because the presence of a positive number indicates a specific profit, and a negative number also indicates a known loss.
  • Flexibility to use:
    Flexibility of use is one of the most important ROI benefits. It can be used in different departments, within many businesses, such as E-Commerce. and perform marketing campaigns or to track management of purchases, sales performance or others. In this way, the company can measure the profitability or quality of performance of its operations, and it can easily make improvement decisions.
  • ROI is a widely used measure:
    The ROI metric is widely used and thus is a concept familiar to many people. Therefore, it can be shared with the managers of various activities within the company, teaching how to calculate correctly. Take advantage of it to improve the performance of the departments responsible for it, rather than just doing it every time. It can also be shared with investors who are interested in knowing the value of the return on investment, and with third parties who decide to provide financing accordingly.

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Disadvantages of Return on Investment in Marketing

Of course, using ROI as a metric within a company has some drawbacks. And it must be well taken care of so that it does not negatively affect the financial performance of your company. So you can manage it and just keep the ROI benefits.

The main disadvantages of ROI:

  • The company’s cash flow is not shown as part of the return on investment:
    ROI does not focus on cash flow (the movement of money in and out of the business) as one of its components. Therefore, it can be difficult to verify the accuracy of financial performance based solely on calculating ROI. For example, an activity may generate a 10% ROI, but lose cash flow, which is not a good thing. Even if an activity generates 5% ROI, it gets to perform better. Therefore, ROI should be used in conjunction with other financial metrics to get a complete picture of how money is being spent, rather than comparing ratios that don’t tell the whole story.
  • ROI focuses solely on financial success:
    ROI is concerned with focusing only on the financial success of the project. For example, if you decide to invest in the development of tools and technology used within the company. This will lead to a decrease in the value of the return on investment, even if this decision helps in improving the work performance of employees. And the whole company. Therefore, it is important not only to influence the value of the final ROI. But also look at the other non-financial benefits that the company receives and look at them in the same way as the company’s performance.
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How can the return on investment be calculated?

How to calculate return on investment

The return on investment is calculated by dividing the net profit by the value of the investment and then multiplying by 100 to get the return on investment as a percentage.

For example, if you decide to create several marketing campaigns, and the investment value is $1,000, and the net return on investment is $200. The ROI for marketing campaigns will be 20%.

ROI = 200/1000 * 100 = 20%
You can also calculate ROI another way, by calculating the total ROI and subtracting the actual value of the investment from all costs. Then divide the result by the actual investment value, and multiply it by 100 to get the percentage.

For example: If you decide to launch a new product and the costs incurred are $14,000 and the revenue is $18,000. The return on investment will be 28.7%.

ROI = (18000-14000) / 14000 * 100 = 28.7%

Steps to improve the rate of return on investment

The value of the return on investment depends on the nature of the business, but the one thing they all have in common is the desire to improve this value. Where everyone is looking for ways to make more profits. The rate can be improved by following four steps:

Step one: focus on the time factor

One of the problems with ROI is that it is generally not respectful of time. Therefore, it is important to pay attention to the time factor while planning the ROI results for various activities.

Do not set an ROI value without a time limit, always put the application in a clear and defined time frame. For example, aim for a 10% ROI over the next year.

It is also important to pay attention to factors that change over time, such as interest rates.

If you ignore the effect of these numbers, the result will be that the return calculation will not be accurate enough. So think of a margin for those potential increases, and add them as part of the costs. Or at least consider this increase in terms of its impact on your financial performance.

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Step two: Learn from past experiences

In the end, ROI is an expectation-based metric. So the numbers may not always be accurate, but they try to get the result as close as possible to reality.

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Therefore, do not just make your goal to record the return on investment, but try to develop the forecasting method so that it matches reality as closely as possible, so as not to find significant differences in value.

One of the most important ways to do this is to learn from past experience. For example, analyze marketing performance, compare costs paid and results achieved, and the percentage of return on investment that this analysis represents.

Based on this result, make a decision on the future forecast, based on your capabilities and the funds allocated to this activity. Take advantage of past values ​​to improve future performance, such as increasing investment to make more profits.

Step three: think holistically

ROI focuses on financial performance, but that doesn’t mean ignoring other things that affect the business.

So always balance the decisions you make, and don’t aim for a high ROI in the short term.

But consider whether the money can be invested in other activities to make further improvements to improve performance. In this way, in the future, you can get a high return on investment.

Also try to take advantage of the return on investment and scalability in different activities, making sure to predict the percentage of return on investment for each activity within the company. Such as: sales, purchasing, operations, content and other activities. In this way, you focus on improving all aspects of performance related to financial decisions.

When you want to analyze performance, or when you want to make development decisions, analyze all the ratios of your activities, and test the impact of each on the current return on investment.

Then make the right decisions, whether it’s developing one activity that has had the most impact, or making adjustments to all activities, ensuring that your efforts are focused in the right areas.

For example, if you use copywriting as one of your marketing strategies to generate sales. If you see a problem with your ad’s performance, for example, and the resulting lower ROI. Please review the content of these ads to consider appropriate amenities. As a procedure for developing a CTA, then monitoring and analyzing performance to see the outcome of this change.

Step Four: Focus on Improving Team Performance

The rate of return on investment can be increased by improving the performance of the team responsible for the various project activities. When people make better efforts, there will be improvement in productivity, which leads to more production or sales.

Thus, we have known the most important information about Return on investment in marketing To help evaluate water performance, you should plan well before starting anything.

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