ROI Calculator for Marketing Campaigns

ROI Calculator for Marketing Campaigns
28 February, 2023 • ... • 5027 views
Daria Zhuravleva
by Daria Zhuravleva

How to estimate the efficiency of marketing efforts? There are many metrics like click-through rate and conversions. However, none of them tell you how well you’re using the marketing budget. There’s a different metric for that — it’s called return on investment (ROI).

In this article, we’ll talk about return on investment — what it is, why it’s important to calculate it, and how to use our marketing ROI calculator.

What is marketing ROI or ROMI

ROI stands for Return On Investment — ROI measures the amount of profit you gained from invested money. It’s expressed as a percentage rate: 

  • If you spent $100 and earned $100, your ROI is 0% — you just broke even with no surplus.
  • If you spent $100 and earned $200, your ROI is 100% — each dollar you invested brought you one extra dollar aside from breaking even. 
  • If you spent $100 and earned $150, your ROI is 50% — each dollar you invested brought you half a dollar in the surplus.
  • If you spent $100 and earned $50, your ROI is -50% — you went negative and didn’t get any revenue from your investments.

The metric is applicable to any activity involving money like buying stocks or evaluating startup growth. We will focus specifically on ROMI, or Return On Marketing Investment. Here’s what it’s basic formula looks like:

ROMI = (Revenue – Marketing Costs) ÷ Marketing Costs × 100%

For example, you spent $500 on running an email campaign and earned $2,500 on sales this month. Let’s calculate your monthly ROMI:

ROMI = (2500 – 500) ÷ 500 × 100% = 400%

But how do you know all of this revenue came from your email campaign? There’s actually a more precise ROMI formula:

ROI = (Total Revenue – Organic Sales Revenue – Marketing Costs) ÷ Marketing Costs × 100%

Now let’s get back to the previous example. What if you earned $2,500 on sales but $1,000 came from organic website traffic and the rest came from promotional emails? Let’s calculate the monthly ROMI again:

ROMI = (2500 – 1000 – 500) ÷ 500 × 100% = 200%

How to use the marketing ROI calculator

What if you could calculate ROIs without writing a new formula in Google Sheets or Excel? We’ve got you covered — here’s our own marketing ROI calculator. Let’s take a closer look at how to use it — which variables it has and what they mean.

How efficiently do you use your marketing budget?

Revenue
How much money you earned in a week, month, year
Fill in any of these fields:
Margin
Margin is the difference between cost price and retail price in percentages. For example, the average margin in e-commerce is 20–25%.
Cost price
Cost price is how much money you spent on production or purchasing the goods for sale.
Marketing costs
These include the salaries of marketing department employees, paid traffic expenses, and marketing software subscriptions over the same period of time as your revenue above.

Uh-oh! Looks like you’re in the negative. Check the numbers for misprints — or reconsider your marketing strategy for a better ROI.

You earned all your marketing expenses back. But can you do better? Of course! There are many ways to increase ROI — for example, work on customer loyalty for a better LTV.

Your ROI is insane! Keep going, you’re doing great. By the way, would you like to write a case study for our blog? We’d be so excited to work with you!

Revenue

Revenue is simply how much money you earned over the time period of your choice. Keep in mind that ROI is a time-bound metric — you can calculate it for a week, a month, or a year. So, if you chose one month, for example, all the other variables should be over this period too. 

Margin and cost price

You don’t have to include production costs if you calculate marketing ROI. If you don’t, you’ll still get a general idea of how well your marketing efforts pay off. But if you do, you’ll get a more representative ROI value. With cost price and margin, the formula will look like this:

ROI = (Profit – Marketing Costs) ÷ Marketing Costs × 100%

Revenue is simply your income over the time period of choice. Profit is how much money you actually have after covering all the expenses. This ROI is more precise — aside from marketing profitability, it shows if your business model is efficient. 

Marketers don’t always need this much information though. Sometimes using just revenue and marketing costs is enough to evaluate how well one campaign or marketing channel paid off. But if you need better data, use our calculator and add:

  • Margin — simply put, it’s the difference between cost price and retail price in percentages. For example, if you spent $200 on making a dress and then you sell it for $250, the margin is 25%.
  • Cost price — how much you spent on production or purchasing over the time period of choice.

Marketing cost

Marketing cost is how much you invested in marketing over the time period of choice. This includes:

  • Salaries and wages of all the employees working on marketing
  • The cost of marketing software — for example, an ESP subscription
  • The cost of paid advertisements like Google Ads, targeted ads on social media, and so on

Should you include all of the above? It depends on the goal. If you want to calculate ROI of one marketing channel or, for example, a fancier version of an ESP, you don’t have to include salaries and other expenses. However, in this case you should only include the revenue you got from the particular channel as well. And if you don’t narrow anything down, include all your marketing expenses over the time period.

Why calculate marketing ROI

You can evaluate your marketing campaign’s efficiency with many metrics. For example, if we’re talking about emails, these include open rate, CTR, conversion rate, unsubscribe rate, and so on. Do you even need ROIs when you have conversions and sales revenue? 

The short answer is yes — here’s why.

Use your budget wisely

Imagine that you want to change your profession so you could earn more money. Your current yearly income is $16,000. You spent $400 of your life savings on an online course. Meanwhile your friend opted for a cheaper course that costs only $50. After 2 months of rejections and ghosting, you both found a new job that pays $20,400 a year, which is $1,700 a month. After two months, you saved $500, which is $100 more than you spent on education. And your friend saved the same amount of money — but it’s 10 times more than their education expenses. So, did you make a good decision?

The same goes for marketing ROIs. If you monitor this metric, you’ll be able to make wiser financial decisions:

  • Redirect money into more profitable channels — for example, if you see that emails pay off better than Instagram ads, you might start investing more in email marketing to earn more money later.
  • Choose better instruments — for example, you might find out that your email marketing ROI is lower than expected not because your emails are bad but because your email marketing software is too expensive.

Improve your strategy

When it comes to content marketing, simply creating good content doesn’t work. Of course you need to have some kind of quality assurance —  let’s say, for email copies. But if a good copy brought some attention to your brand but didn’t bring you sales, is it even a good copy?

Unlike open or click-through rates, ROMI may be the only metric that evaluates how effective your marketing strategy is from the financial perspective. If you include ROMI in your marketing statistics, you can make changes to your approach to email content or the strategy in general — and improve your campaigns.

Get a solid proof

Imagine that you’re an email marketer in a big company with a very stingy CFO. Last month, your campaign brought a lot of money. Even better, you gained 200 new subscribers from the landing page. But here’s the problem — your email marketing software has a plan that limits the contact list size and the amount of emails you can send per month. Even worse, you need to hire a part-time copywriter to create content faster. How can you convince the CFO to increase the marketing budget?

The answer is calculating ROI. This metric will be the only solid argument. Like any investment, hiring a new employee or buying new software has its risks. But if you show that these investments have a chance to come back with a surplus, you’re more likely to convince your workplace supervisors.

Most important metrics for CFOs, CEOs, and board members survey
Source: Marketing Week

The survey by Marketing Week confirms the data. According to it, 53% of large business owners and 43% of small business owners consider ROI the most important metric. That’s why calculating ROMI is a solid argument when it comes to workplace negotiations.

Why this rate is difficult to calculate

The ROMI formula is pretty simple. However, according to the survey by Uptempo, 61% of marketing leaders struggle with calculating ROIs because they’re not confident about the data. Why is that? There are many factors — let’s investigate.

Attribution

You had a huge fight with your best friend — but then you remembered that Mercury is in retrograde, so that’s the reason. However, even in science correlation doesn’t mean causation. If two events occurred consecutively or simultaneously, it doesn’t mean they’re connected in any way.

When it comes to calculating marketing ROI, you might face the same problem. For example, imagine a makeup store that saw a surge in sales during the International Women’s Day. What was the reason — the holiday that naturally increases expenses on certain items or the efforts of the marketing department? 

Uncontrollable variables may mess up with your data. Holidays increase sales or, for example, an unprecedented crisis may lead to panic buying or saving money on non-essential items. So, increasing or decreasing sales might not always be your fault or achievement — it’s hard to link these fluctuations directly to marketing campaigns.

Long-term value

Not all marketing channels work right away. For example, it may take up to a year for content marketing to substantially increase traffic and sales. In comparison, according to the survey by Morning Score, the first SEO-fueled traffic increase can be seen after 6 months — but it takes up to 24 months to start working in its full power. And in the case of Pay-Per-Click ads, most sources claim that it takes 2–3 months for them to show significant financial results. 

Now imagine a small business that only started investing in marketing — they didn’t even have a website until now. How can a company like this calculate ROIs? And can they assume that their marketing strategy is inefficient after just one month of active promotion?

Unmeasurable value

Finally, not all marketing is about sales as the end goal. For example, awareness campaigns aim at drawing public attention to the brand, increasing its recognition, and creating a positive image. Think Coca-Cola’s Christmas Eve commercials.

Campaigns like these don’t increase sales directly. However, without them, it’s impossible to sell. Awareness is the first step of the sales funnel. Awareness campaigns, in turn, create leads that will convert to sales — just not all of them and not right now.

Another example is marketing campaigns that aim at increasing brand loyalty. Campaigns like these build relationships with existing customers using channels like email newsletters. Loyal customers buy more from you later. However, loyalty by itself is not a metric that can be calculated or directly linked to money. 

Does all of that mean that ROMI is an unreliable metric and you shouldn’t use it? Not really — you can still get a good approximation and these issues are all manageable. Here’s how:

  • Use better tracking methods to fix the attribution problem.
  • While evaluating, combine ROMI with other metrics like Cost-Per-Lead or conversion rates to get a more detailed picture.
  • Set more realistic goals if you only started promoting a new business and don’t jump to conclusions if you didn’t see a 1,000% ROMI after the first month.

What is a good marketing ROI

Earlier, we mentioned some numbers like 400% and 200% — are they good? What is a “good” marketing ROI and how to find out if you’re doing it right?

Most sources claim that a good marketing ROI is 500%, which is $5 earned for each dollar spent on marketing. The ROMI of 1,000% is considered exceptional — and everything below 200% is deemed unprofitable. However, it’s a little more nuanced.

The “good” marketing ROI depends on:

  • The marketing channel — for example, the average ROMI for Google Ads is assumed to be 200%, the average SEO ROMI regardless of the industry is 825%, and email marketing can reach a whopping 3,600% ROMI.
  • Your marketing goals — as we mentioned earlier, it’s hard to evaluate the ROI of awareness campaigns because they don’t pay off instantly and they don’t intend to sell. That’s why it’s more reasonable to set lower financial success criteria for campaigns like these. However, if your sales emails yield less than 200% in return, you might be doing something wrong.
  • Time — as we mentioned earlier, ROI is a time-bound metric and not all marketing channels work right away. For example, the aforementioned 825% SEO ROI is an average over 3 years, and the time of breaking can reach up to 14 months depending on the industry. 

The key takeaway is, every business is different, and the “perfect” ROMI depends on many factors. Consider these factors while setting ROMI goals for your campaigns. And if you’re implementing a marketing strategy from scratch with no promotion before, start by attempting to reach a positive ROI and break even.

And that’s all you need to know about ROMI! Whether you’re just curious or consider monitoring ROMI on a regular basis, feel free to test out our marketing ROI calculator.

You can also check out our other services:

28 February, 2023
Article by
Daria Zhuravleva
I'm a writer with 3 years of experience, knowledge and interest in all things IT and marketing, and a passion for the English language. As a staff author at Selzy, I see my mission as an educator who makes your life easier by explaining complex topics in a digestible and somewhat entertaining way. Hobbies include birdwatching, all things music and art, writing freeform poetry, and hiding in the woods.
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