What is ROI - Return Of Investment ?
Return of Investment is a generic term used when talking about the economy and sales. In short, it's an expression of how much you get back when you make an "investment". In connection with marketing or advertising, it is a reflection of earnings in relation to the advertising expense. In the website design and online marketing area, we are so fortunate that everything can be measured and recorded very carefully and read via easy to understand statistics.
Here it is illustrated throughout with a small example:
- John has a Google Adwords ad, where he is advertising for e-books (electronic books) which he sells through his website.
- Each time 20 people have clicked on John's Adwords ads, there is one who chooses to buy an e-book from John.
- John pays 3 dollar per click, so it costs John (3 * 20) = 60 dollar per generated sale through Google Adwords advertisement.
- John sells the e-book for a price of 90 dollar, and thereby John's ROI in percent is ((90/60) * 100) = 150%.
This means that for every dollar John spends on its Google Adwords ad, he sells for 1.5 dollar. Hence the absence of other direct costs in the supply, sale or production of the book (as this is an e-book) it's a quite good deal for John.
You can set up your website and your analytical tools, such that it can be measured in the ROI of different products and what different ads provide. Thus one can easily see which ads are worthwhile running and which ones are just pure business losses. And as a side bonus you get an idea of which products sell best and which earned most money after advertising costs are paid.
You can choose to calculate your ROI by taking your advertising expenditure (perhaps divided per advertising media) and then hold it up against the same income you have been through this advertising, and thus one arrives at its ROI. It is possible to see your ROI in Google Analytics and other similar statistical and analytical tools, if it is configured and installed by a qualified Google Analytics expert.