ROI (Return on Investment)
Definition
A measure of profitability showing how much you earned compared to how much you spent. Essential for evaluating marketing effectiveness.
What is ROI?
ROI stands for Return on Investment. It measures how much profit you made relative to what you spent.
Formula: ROI = ((Revenue - Cost) ÷ Cost) × 100
Spend £1,000, make £3,000 back = 200% ROI.
Why ROI Matters
Decision Making
Which marketing channels are worth continuing? ROI tells you.
Budget Allocation
Put more money into high-ROI activities.
Accountability
Prove that marketing spend is generating returns.
Comparison
Compare different investments objectively.
ROI for Marketing
Direct Response
Easy to measure – ad spend vs sales generated.
Brand Awareness
Harder to measure – long-term impact on recognition and trust.
Content Marketing
Takes time – ROI may take months to materialise.
SEO
High long-term ROI but requires patience and consistent investment.
Calculating Marketing ROI
Basic: (Revenue from marketing - Marketing cost) ÷ Marketing cost
Better: Include lifetime customer value, not just first purchase.
Example:
- Spent: £1,000 on ads
- Generated: 10 customers
- Each customer worth: £500 (lifetime)
- Total value: £5,000
- ROI: 400%
Common ROI Mistakes
Short Time Frames
Some marketing (SEO, content) takes months to show ROI.
Ignoring Attribution
Multiple touchpoints contributed to a sale – which gets credit?
Not Tracking Properly
Can't measure ROI without proper conversion tracking.
Forgetting Costs
Include staff time, tools, and agency fees – not just ad spend.
What's Good ROI?
Varies by industry and channel, but generally:
- Below 100% = Losing money
- 100-200% = Modest return
- 200%+ = Strong performance
- 500%+ = Exceptional (and sometimes unsustainable)