How to calculate marketing ROI?

In order to build efficient marketing you have to do two simple things:

• Increase spending on marketing campaigns that work

• Disable campaigns that don’t work

How do you know if campaign is working or not? Marketing ROI will help you to. All you need to do is calculate profit for each marketing campaign and divide it by its spendings:

ROI = 100 x (campaign profit) / (campaign spendings).

Let’s say you are selling iphones 7. It’s price is 5 hundred bucks.

Let’s say you decided to buy some traffic on Google adwords or Facebook - people who are interested in iphones. You do some tuning and launch you ads. You spend 1 thousand bucks, get 100 visitors and generate 15 sales (giving you $500 each). Let’s assume you’re buying Iphones directly from Tim Cook with a huge discount for $200 each. So you get $300 in profit every time you sell an iphone for $500.

Let’s do some calculations:
Campaign ROI is = 100 x (15 x $300 - $1000) / $1000 = 350%

After you’ve calculated ROI for all your campaigns you just need to stop campaigns with east ROI and focus on campaigns with maximum ROI.

So let’s say you are selling iphones 7 and a spaceships on your website. Iphone price is 5 hundred bucks and spaceship price is 5 million saint dollars. You’re getting iphones directly from Apple for $200 each (is it Chinese fake?). And Spaceship from Elon Musk for $4 million each.

You’re buying traffic on Facebook for two products:

• Iphone campaign costed you $1000 and generated 15 sales ($300 profit from each sale)

• Spaceship campaign costed you $500 thousand and generated 1 sale ($1 million in profit)

Let’s calculate ROI for 2 campaigns (cross link):

• Iphone campaign ROI is = 100 x (15 x $300 - $1000) / $1000 = 350%

• Spaceship campaign ROI is = 100 x (1 x $1000 000 - $500 000) / $500 000 = 100%

Well, as we can see Iphones are generating 3.5 times more money that spaceships. So you should stop your spaceship campaign and invest or your marketing money into selling iphones.

You should recalculate your ROI at least daily. If iphones’ ROI will go below 100%, you should then switch all your budget on spaceships. And that’s how you grow next Amazon.