What is the difference between a successful website and a complete flop? I know it sounds like the start of a joke but it really isn’t funny. The answer is the ROI (Return on Investment).
Topics to be covered today
- What is ROI
- How is ROI calculated
- Optimizing ROI
This is probably one of my favorite topics because this is often times the topic that grabs my client’s attention the most. Goals and audience definition are incredibly important but unless you really get into it, the value isn’t always clear in the beginning. When we talk about ROI and a businesses “bottom line”, people perk up. SO PAY ATTENTION!
ROI is short for Return On Investment and it is a measure of how much return you got back from an initial investment. The higher the ROI the better the campaign.
ROI is calculated as follows:
ROI = (Investment Gain + Investment Cost) / (Investment Cost)
Investment Gain – What you got back from your initial investment
Investment Cost – The initial investment
If I spent $100 on a banner ad and because of that banner and I make $100 profit – my ROI would be 2.
If, on the other hand, I spent $100 on a banner ad on a different site and made $0 profit – my ROI would be 1.
An ROI of 1 is breakeven. so if ROI > 1, you made money. If ROI < 1, you lost money.
In the online world we will typically see ROI calculations for marketing efforts like:
- PPC advertising
- Display advertising
- Email marketing
But this isn’t all that we can calculate ROI for. ROI can also be calculated on indirect marketing activities such as:
- Web site maintenance/additions
- Lead generation
- SEO efforts (remember with SEO we are improving the site, not paying for traffic)
The big key when optimizing campaigns to maximize ROI is to not make a lot of changes at once. In the online world we can usually see results quickly so make one small change at a time and see how it affects your ROI.
Items that you can modify include, but are not limited to:
- distribution channels (switch from Bing to Google to Facebook)
- modify ad headlines
- increase the number of posts to your blog
- the time of day your ads are showing up
- the market you decide to target (re-read yesterday’s email)
The daily take …
- ROI is a measure of campaign success
- Calculation is a ratio total investment + profit divided by the total investment
- ROI > 1 is good, ROI < 1 is bad
- When optimizing your ROI, only make small incremental changes and track them (they won’t all be good)
If you have any questions about any of this please feel free to email me or call.