How to Calculate an ROI on Advertisements

Jan 19, 2018

Any successful business moguls and/or marketing team will tell you that when you make an investment it is important to track and learn from your Return on Investment (ROI). Most businesses know how to track an ROI in terms of their lease and marketing efforts, but we wanted to outline why it’s a crucial metric for your advertising campaigns and how to track it.

 

What is an ROI
An ROI is a simple way to measure the return on your investment after your advertising and/or marketing campaign. When you measure your ROI you can learn about your successes and failures and see if you profited as expected.

 

Why is a ROI Important?
Tracking your ROI of your campaign will help you see what is working and what isn’t working with your campaigns. This will help you identify your strong and weak points and put more money on your stronger campaigns while ending your weaker ones. Even better, tracking your ROI helps you evaluate your audience numbers and convert more visits into conversion optimization.

 

Tracking Tools vs Tracking Services
There are two ways that you can track your ROI; through tracking tools or through tracking services. Tracking tools are usually free and can be found through a search engine, like Google while tracking services are purchased through a third party.

Tracking tools can be integrated, automatically, into your marketing campaign accounts when you use a Pay-Per-Click advertising service. You will receive a ROI report with your standard pay-per-click report and thus can track the success rate of your campaign, the ranking of keywords, and your site’s ranking. There is only one negative with this option, each search engine has their own report so you cannot aggregate the results together.

Third Party ROI tracking services offer the same services as the tracking tools yet, it requires a little more personalization. After choosing, and signing up, for a third party service you will have to copy and paste code into your Landing Page so that the service can record and track clicks and other metrics. The tool can also manage your campaign for you and then you will receive reports on the information that you have needed.

Tracking your ROI on Spacewolff

With some mediums, it’s difficult to know just how big of an audience your ad reached. There are simple ways to encourage the audience to convert, whether it’s a unique URL or a promo code specific to each ad placed.

Finding the ROI with an Equation

If you are able to look at your revenue of your ads in another way then you can still calculate your ROI with a simple equation:

ROI=(Revenue-Costs of goods sold) / Costs of Goods Sold

So you will be taking the revenue, from your ads, and subtracting your overall costs and then dividing by your overall costs. Or, to make it even easier, Net Profit / Total Investment x 100 = ROI.

Let’s try an example:

You purchase an ad space for $5,000.00 and spend another $10,000 on the marketing campaign. When the campaign ends you net $50,000, what is the ROI?

Our net profit is our net, $50,000 minus what we spent, $15,000 (ad space and campaign cost) which means the net profit is $35,000.

Our total investment is what we spent, $15,000.

So, we know the ROI=Net Profit / Total Investment x 100

ROI = $35,000 / $15,000 x 100
ROI = 2.3 x 100

ROI = 233%

That equates to a massive success! You can now go forward knowing that both this ad space and this marketing campaign combined is successful. Now if you lose money you will do the same equation but use negative numbers instead.

There are plenty of free ROI calculators and Google/Excel Sheets that you can use as well to make sure your ROI is always accurate. There are also other formulas that you can use, however, this is the most common one used.

Analysis

 Any ROI that you get that is positive is a good return because the total cost of the investment was covered plus profit left over. A negative return on your investment means that not enough was made to cover your investment, hence the loose. You can use an ROI in many different ways but it’s extremely important with ads and marketing campaigns to ensure that you’re making the right decisions for your business.

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