Return on Investment (ROI) is easily defined as a profitability ratio that calculates how much profit one made after an investment.

ROI can be expressed easily in the formula:

Now that we have the formula, what next? If you invested $10,000 in marketing for the year and you take your Net Profit (Net Profit = Revenue – COGS – operating expenses – other expenses – interest – taxes) found on your financial statements then you simply divide Net Profit by $10,000.

Is this method practical? It is if you only spent $10,000 on one marketing activity but, often, revenues come from other sources such as Word-of-Mouth/Referrals, Brand Recognition, one-time sunk cost marketing such as signage, etc.

In a perfect world, we could calculate ROI from individual activities such as SEO, Social Media, website design, brochures, cooperative marketing efforts, etc.  But consumer purchase decisions often take in to account multiple “touch points” before a buying decision is made. Also, the buying cycle may be 3-12 months; and you could me selling multiple products where marketing efforts may be specific to a product.

How do you connect today’s marketing activities with a purchase 6 months from now?

Calculating ROI should be a long-term effort. If clients shared monthly sales data we could correlate sales with various metrics such as (1) Website visits, (2) social media metrics, (3) leads from website forms, and so on.

Checkout this video: To calculate ROI it would be helpful to know what to measure. Here’s an example of a correlation analysis to help find out what marketing activities has a strong relationship to you sales. We can help you through the entire process.