Return on Investment (ROI) is a metric used in advertising and marketing to measure the profitability of an advertising campaign. By comparing the amount of revenue generated to the costs incurred, ROI tracking helps businesses determine the effectiveness of their advertising efforts… and whether the money they’ve invested in advertising is generating enough revenue to justify the cost. Keep reading to learn all about ROI, how it’s calculated, and how your business can use ROI to allocate budgets efficiently.
What is ROI Tracking?
ROI stands for Return On Investment. Put simply, ROI measures how much gain or loss is made from an investment relative to its cost. ROI tracking allows us to evaluate the success an advertising campaign. We can determine what worked and what didn’t… and then based on that outcome, decide where we can reallocate our budget to maximize return. For more specific information related to budgeting for optimal returns, check out our Budget Blueprint.
While ROI focuses on the profitability of an investment, other performance metrics, like Return on Ad Spend (ROAS), measure revenue generated per dollar spent on advertising. Unlike ROI, which accounts for net profit, ROAS only considers the gross revenue, making ROI a more comprehensive metric for evaluating overall investment performance.
How to Calculate ROI in Advertising
To calculate ROI, you will need to first determine two key values:
- Amount of Revenue Generated: This is the amount of money earned as a result of the advertising campaign. This can be calculated by tracking the sales or leads generated by the campaign.
- Advertising Costs: This includes the sum of all costs associated with the advertising campaign, such as creative production, media buying, and agency fees.
Once you have these figures, you can use the following formula to calculate ROI:
Return On Investment Formula:
ROI = (Revenue generated – Advertising costs) / Advertising costs
For example, if a company spends $10,000 on an advertising campaign and generates $20,000 in revenue, the ROI would be:
ROI = ($20,000 – $10,000) / $10,000 = 1
This means that for every dollar spent on advertising, the company generated $1 in revenue.
ROAS vs. ROI: What’s the Difference?
Both ROAS and ROI (Return On Investment) are the metrics used to look at the results obtained for the cost (ad spend) invested… but they are not to be confused!
The formula for ROAS is:
ROAS = Revenue from Ads / Cost of Ads.
The key difference is:
- ROI tracking provides insight into the profitability of each campaign to secure the continuation of your business.
- ROAS provides insight into how much revenue is generated for every dollar spent on advertising, helping companies to make data-driven decisions that can significantly impact their bottom line.
It’s important to note that ROI values in advertising is not always straightforward to calculate. There are often indirect benefits that are difficult to measure, such as brand awareness or customer loyalty.
However, it’s crucial to perform ROI tracking for each campaign. This helps us identify the most effective strategies and make necessary adjustments for the best results.
Tracking ROI: Social Return On Investment
If you want to explore a step further to go above and beyond for your business, you might look into tracking Social Return On Investment (SROI) as a metric for performance evaluation. SROI is an advanced performance metric that extends beyond financial returns to include social, environmental, and community impacts. Unlike traditional ROI, Social Return On Investment evaluates the broader value created by an investment, considering factors that ROI fails to account for like social well-being, environmental sustainability, and community benefits. This more holistic approach helps organizations see the full impact of their investments and make decisions that support sustainable development and social good.
Calculating Social Return On Investment (SROI) involves several initial steps to quantify these social, environmental, and economic impacts. First, identify the scope and stakeholders of the project. Next, map out inputs (the resources invested) and outputs (the results). Then, measure outcomes by assessing the changes experienced by stakeholders. Assign monetary values to these outcomes using financial proxies.
To calculate SROI, follow these steps:
- Assign monetary values to these outcomes using financial proxies.
- Identify the scope and stakeholders of the project.
- Map out inputs (resources invested) and outputs (results).
- Measure outcomes by assessing the changes experienced by stakeholders.
For example, if a program reduces hospital visits, the proxy might be the average cost of a hospital stay. By calculating the money saved due to fewer hospital visits, we can create a numerical value for the economic benefit of improved health.
After quantifying these impacts using financial proxies, calculate the SROI ratio by comparing the total value of outcomes to the total investment.
Social Return On Investment Formula:
SROI = Total Value of Benefits/Total Investment Value
Calculating this value will give you a better understanding of the broader impacts of an advertising investment, beyond just the financials that ROI encompasses.
ROI Tracking: Success in the Marketing World
Now let’s take a look at some brands that have impressively high ROI and look at the creative ways they gained success.
Apple: “Shot on iPhone”
Apple’s marketing presence is praised worldwide, shining through its innovative campaigns and consistent delivery of impressive return on investment (ROI). The “2019 Brand Finance Global 500” report highlighted Apple’s marketing ROI at 4.3. Forbes further quantifies this success, revealing a staggering $7.7 billion in ROI from its marketing efforts. So how did they do it? Crucial to Apple’s strategy, of course, is the design of their iPhone launch campaigns that build anticipation and drive sales through secrecy and excitement. Apple capitalizes on that buzz with well-timed product reveals, teaser videos, and exclusive events. The “Shot on iPhone” campaign is a great example of Apple’s genius approach, using user-generated content to showcase the iPhone’s capabilities and fostering a sense of community with the audience.
Nike: “Just Do It”
Nike’s marketing prowess is made clear by its impressive return on investment (ROI), highlighted in the “2020 Millward Brown BrandZ Top 100 Most Valuable Global Brands” report, where Nike achieved an impressive ROI of 5.2. Their ticket to success? The controversial, yet impactful, campaign featuring Colin Kaepernick. Despite the polarizing nature of his activism and views, Nike’s inclusion of Kaepernick in the “Just Do It” campaign seemed to strike a chord with younger, socially conscious audiences. This strategic move ended up generating $6 billion in sales for Nike, as reported by Fortune. By finding a way to subtly align with social justice advocacy, Nike was not only able to strategically boost revenue but also strengthened its brand identity as an enduring icon in the sportswear sector.
Old Spice: “The Man Your Man Could Smell Like”
Old Spice’s “The Man Your Man Could Smell Like” campaign, which launched in 2010, is a standout example of high return on investment (ROI) in marketing. Featuring Isaiah Mustafa, the campaign became an instant hit, boosting brand visibility and sales. According to Procter & Gamble (P&G), Old Spice’s parent company, the campaign led to a 125% increase in sales. The success extended beyond TV to social media, with Old Spice’s YouTube videos amassing millions of views and its Twitter followers increasing by 2700% within 24 hours. By following up with sequels like the “Smell Like a Man, Man” campaign, Old Spice continued to drive engagement and sales, resulting in a 107% increase in body wash sales.
The Importance of ROI Tracking
Overall, Return on Investment (ROI) is an important metric you can use when evaluating the profitability and effectiveness of your marketing campaigns. By tracking ROI, you can measure the direct financial benefits generated from your inputs, providing a clear picture of which of your strategies yield the highest returns.
Incorporating both ROI and Return on Ad Spend (ROAS) in your business analytics, along with Social Return on Investment (SROI), is a great way to get a big-picture-understanding of how your marketing efforts are performing. Whether it’s a campaign, product launch, or training program, understanding and tracking these values will help you make informed decisions.
To learn more about how you can use ROI to stay competitive in your industry, drive growth, and achieve long-term success, contact us.