Return On Investment
Bosses or marketers can consider Return On Investment (ROI) to evaluate the effectiveness of promotional activities. One of the greatest advantages of online advertising is providing data support to evaluate the effectiveness of the activities. By calculating ROI, promotional budget can be planned easily.
ROI measures the ratio of a company’s profits on the amount of money invested. Generally speaking, result of ROI can be represented in percentage (%). The higher ROI percentage, the higher the return on investment.
An online travel agency places $20,000 monthly advertising budget (Cost of Investment) on Yahoo search marketing.
- The number of monthly clicks received is 8,000 according to the monthly search marketing report
- 10% of the 8,000 clicks become potential customers, of which 6% commit to business transactions, as such there will be 48 transactions each month
- The average business revenue per transaction is $4,000, the total revenue is $192,000
- Net profit is 40% of the revenue, the total net profit will be $76,800
Monthly Advertising Spending (Cost of Investment) $20,000
Monthly Clicks Received 8,000
Percentage of Clicks that Become Potential Customers 10%
Percentage of Potential Customers who Make Business Transactions 6%
Average Business Revenue per Transaction $4,000
Net Profit as a Percentage of Revenue 40%