What is ROI (Return on Investment)?
ROI is a financial metric used to evaluate the profitability of an investment. In digital marketing, it measures the amount of revenue (or profit) generated from a marketing campaign relative to its cost.
Formula & Example
ROI = ((Net Profit from Campaign – Marketing Cost) / Marketing Cost) * 100
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Example: You spend ₦10,000 on a PPC campaign. It generates ₦50,000 in new revenue, and the cost of goods sold is ₦20,000 (leaving ₦30,000 net profit).
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ROI = ((₦30,000 – ₦10,000) / ₦1,000) * 100 = 200%.
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ROI’s “Who, When, and Where”
- Who cares about ROI: Everyone, but especially business owners, financial analysts, and marketing managers. It’s the key metric for justifying budgets and proving the value of marketing to leadership.
- When is ROI calculated: It is calculated after a campaign or a specific period (like a quarter) to evaluate performance. It’s the “final grade” that determines if a marketing effort was profitable and successful.
- Where is ROI applied: The concept is applied to every digital marketing channel: SEO, PPC, email, social media, etc., to see which ones deliver the best financial return.
Significance
ROI is arguably the most important metric for a business. It moves beyond vanity metrics (like clicks or likes) to show which marketing efforts are actually making money. A positive ROI proves the value of marketing and guides future budget allocation.
How to Improve ROI (Summary)
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Reduce campaign costs (e.g., lower CPC).
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Increase conversion rates to get more value from the same traffic.
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Improve the average order value (AOV) of customers.
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Focus budget on the highest-performing channels.
References
https://en.wikipedia.org/wiki/Return_on_investment