How to: Calculate ROI?

ROI, or Return on Investment, indicates how well your campaigns are performing. ROI is usually expressed in percentages and helps to see how much funds (or profit) you are receiving compared to how much you are spending. If the ROI is a positive number greater than 100, it means everything is going well – you have earned more than you spent. If your ROI is less than 100, you may need to reconsider your plan because you are spending more than you are earning. Thus, ROI assists you in making decisions, clearly showing whether you are making money or losing it.

The Formula

The standard formula to calculate ROI is:

ROI = (Net Profit / Cost of Investment) x 100

This will yield a percentage value, a measure of the effectiveness of your strategy.

Investment Cost

The cost of investment in internet marketing includes the total amount spent on attracting traffic. This includes costs for content creation, website and server support and hosting, landing page optimization tools, analytics and tracking tools, SEO and PPC tools, salaries, commissions, and other expenses related to your strategy. Since Keitaro is an ad tracker, it tracks the expenses related to traffic purchasing. Therefore, the ROI calculated in the tracker will show the direct effectiveness of your advertising campaign. However, the tracker allows for manual updating of costs, and you can include all operating expenses to calculate the global ROI of your work. Alternatively, you can use a specially designed CRM, like Pepper CRM for example. In symbiosis with the tracker, it can show the full economy of a pour, buyer, or the entire team in real time.

Net Profit

The calculation of net profit is quite simple. Your revenue is the monetization of the traffic you attracted, usually through advertising, affiliate sales, sponsored content, offers, or other means. Costs include everything you spent on attracting traffic. These costs could be related to buying the traffic itself, creating content, website support, various tools and services, etc. The basic formula for calculating net profit looks like this: Net Profit = Revenue from traffic monetization – Costs for attracting and managing traffic.

ROI Significance

It’s very important to dispel a common misconception: a 100% ROI doesn’t mean that you have a 100% profit. This is rather a break-even point, when the generated income equals the amount spent, indicating the absence of losses but also the absence of profit. Understanding this is key to setting more accurate goals and realistic expectations in internet marketing. Therefore, if your ROI is 30%, it means you’ve incurred significant losses. If your ROI is 100%, it means you didn’t make a profit, but you didn’t lose money either. If your ROI is 200%, it means you’ve earned 2 dollars for every dollar invested, giving you a profit of 1 dollar.

An acceptable or good ROI for different types of traffic or different verticals in traffic arbitrage and media buying can vary significantly depending on numerous factors. Some may find a 150% ROI satisfactory, while others may strive for a significantly higher rate of 300% and more. It’s crucial to do preliminary research on the niche to understand the desired ROI and the reality of achieving it. We hope this article has provided you with some useful information on ROI. And remember, its successful application within your strategy is the true path to success.