What is an ROI?
ROI stands for Return on Investment and means the amount of money you get back from the amount of money you put into something.
If your ROI is 10% then that means for every $1 you spend will make $0.10 profit.
What does ROI mean?
When undertaking brand advertising, for example, the amount of valuable exposure to your brand is very difficult to measure. Considering that all advertising has some amount of value to your brand (in that it’s reminding people that it exists), this means there is always an incalculable x-factor that advertising provides. It’s important to note that this can have a negative value as well as a positive – a very annoying ad, or an ad shown too much or in inappropriate placements may harm your brand.
A simple way to work out the amount gained is using your overall eCPM for your site. After running an ad campaign you can roughly work out if your site saw an increase in impressions, and then work out if the increased money is worth more than the amount you spent on the ad campaign. Of course, there are other reasons why your site may have received more traffic, so this method is not foolproof by any means.
It’s best to stick to basics (unless you are paying someone to analyse your results!), which really is what ROI is great for. It tells you how much money you get back for every penny you spend. So if your ROI is 1 then for every $1 you will make a $1 dollar profit.
The ROI equation is:
ROI = (Amount Gained – Amount Spent) ÷ Amount Spent
- The amount gained includes all profit, including increased/decreased brand value
- The amount spent includes all costs, including admin and fees
Not to be confused with
Rate of Return