Digital Marketing ROI Calculator
How to Calculate Digital Marketing ROI
Return on Investment (ROI) is the most critical metric for any digital marketing campaign. It measures the profit or loss generated by your advertising relative to the amount of money invested. While ROAS (Return on Ad Spend) looks at gross revenue, ROI accounts for your Cost of Goods Sold (COGS) and other overheads to show true profitability.
The Difference Between ROI and ROAS
ROAS is a simple ratio: Revenue / Ad Spend. If you spend $1,000 and make $5,000, your ROAS is 5x. However, this doesn't tell you if you're actually making money after paying for the products, shipping, and merchant fees.
ROI is more comprehensive: (Net Profit / Cost of Investment) x 100. This is the "bottom line" metric that business owners and stakeholders care about most.
Practical Example
Imagine you run a Facebook Ads campaign with the following data:
- Ad Spend: $2,000
- Avg CPC: $0.80 (Resulting in 2,500 clicks)
- Conversion Rate: 2% (Resulting in 50 sales)
- Avg Order Value: $150 (Gross Revenue: $7,500)
- COGS: 50% ($3,750)
In this scenario, your ROAS is 3.75x. Your Net Profit (Revenue – COGS – Ad Spend) is $1,750. Therefore, your ROI is 87.5%.
Key Strategies to Improve Your ROI
1. Optimize Conversion Rates: A small increase in CRO (Conversion Rate Optimization) from 2% to 3% can drastically change your profitability without increasing your ad spend.
2. Lower Your CPC: Improve your Ad Quality Score or Relevance Score to lower the cost you pay for every click.
3. Increase Average Order Value (AOV): Use upsells, cross-sells, and bundles to get more value out of every customer you've already paid to acquire.