ROI, or “Return On Investment,” is a key financial measurement that correlates the cost of business expenditures to their actual value in the “real world.” Generally, ROI is expressed as a percentage, or the ratio of net benefits over costs. This is a common formula for Return On Investment:
ROI = [(Documented Monetary Benefit - Cost of Marketing) / Cost of Marketing] x 100
Let’s look at a simple example. Let’s assume a six-month marketing campaign cost $2,000.00, but resulted in $8,000.00 in profit. $8,000.00 – $2,000.00 = $6,000.00. $6,000.00 divided by $2,000.00 is 3, which calculates to a 300% ROI after multiplying it by 100.
The lower the cost and the higher the benefits, the larger your ROI percentage will be, which – all else being equal – is better of course. Enough with the math! The most important thing for every business owner – from a one-person LLC to the board of directors for a monster corporation – is maximum return for every dollar invested in marketing.
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