What is R.O.I. and why should you track it with your online campaigns?  R.O.I. stands for Return on Investment, and the equation used to calculate R.O.I. is simple and easy to remember: Profit minus the cost then divided by Cost, all multiplied by 100 (to achieve a percentage).

ROI = (Profit - Cost)/Cost * 100

For example, if your online campaign costs you two hundred dollars, and you make a profit of three hundred dollars, your R.O.I. would be 150%.  How do you calculate profit?  Profit equals revenue less cost per sale.  Cost per sale is calculated by dividing the cost by the number of sales.

Suppose you spend the same two hundred dollars and make twenty sales. Two hundred divided by twenty equals ten, which means each sale cost ten dollars.  Let’s say your revenue is five hundred dollars. Five hundred dollars (revenue) less two hundred dollars (cost) equals three hundred dollars (profit). You can also calculate per sale, which would be a profit of $15 per sale if all sales are equal. This formula can also be adjusted to calculate per click values.

You can now use that calculated profit and cost to determine your R.O.I., as shown earlier.  Now that you know how to calculate R.O.I., let’s discuss why you should use that equation and what it tells you about your online campaigns.

Profit is always a fun figure because it means you made some money.  A positive revenue is even better because it means that the money you made exceeds the cost of your online campaign.  However, these numbers all on their own won’t show you the numerical relationships necessary to understanding how successful your online campaigns have been.

Calculating and understanding R.O.I. gives you that percentage, or ratio, of profit to cost which allows you to factor in money spent and get a more realistic view of what to expect should you invest that same cost again, on a similar type of campaign.

Evaluating and tracking R.O.I. over time will allow you to learn from previous online campaigns by illustrating which campaigns are most successful.  From there you can evaluate which elements potentially brought about the highest levels of success and use them again.

Continuing to use the simple equation for R.O.I. will result in your campaigns gaining strength because with each campaign, you will be able to weed out any elements that might hinder your success (by either costing too much or not producing sales) and focus more on those elements that enhance your campaign, bringing you more sales.

More sales mean a lower cost per sale, which will result in higher profits and ultimately a higher R.O.I. percentage.  Tracking R.O.I. will help your campaign as well as your business grow and prosper.