Calculating ROI.

What ROI is and why calculate it

ROI is return on investment. The metric answers a single question: did you earn on that money or lose it.

It is calculated simply. From the revenue earned thanks to the investment, subtract the amount invested, divide the result by the amount invested and convert to a percentage. Zero means you broke even; a negative figure means you spent more than you got back.

In marketing a narrower variant is used more often, where only advertising spend is taken into account. It is usually called ROMI. The difference is fundamental: ROMI shows whether the advertising paid off, while full ROI also accounts for cost of goods, salaries and everything else. To decide “should we continue this campaign” ROMI is enough; to decide “is this product profitable” you need the full calculation.

What you need to know before calculating

There is nothing to calculate ROI from until three things have been gathered.

• Spend by channel — how much went on each source, including the contractor's work and production of materials.
• Enquiries with their source — every enquiry must be tagged with where it came from.
• Deal outcomes — how many enquiries reached payment and for what amount.

The weak link is almost always the third. Advertising is tracked in one system, sales in another or simply in the owner's head, and the two cannot be linked. Until enquiries reach the records tagged with their source, any ROI calculation will be approximate.

The key metrics that sit alongside

ROI is the final figure, but it cannot be managed directly. What you manage is what it is made up of.

Cost per enquiry — how much you paid for one lead. Shows whether a channel is getting more expensive or cheaper.

The share of enquiries that become deals — how many leads the sales team takes through to payment. Often more money is lost right here than in advertising.

Average order value and repeat purchases — if the customer comes back, a campaign with negative ROI on the first deal may turn out profitable over a one-year horizon.

The last point is especially important for services and subscriptions. Measuring returns only on the first sale is the most common reason for abandoning a channel that works perfectly well.

How to improve the metric

There are exactly three ways to raise return on investment, and it is useful to understand which one you are using.

The first is to cut spend: switch off channels that do not work, remove irrelevant queries, narrow the geography and the audience. Fast, but it hits a ceiling.

The second is to raise the share of enquiries that reach a deal. This is work on the website and on sales: response speed, ease of the form, quality of enquiry handling. Usually the most underrated reserve.

The third is to increase the amount a customer brings in: average order value, add-on sales, repeat enquiries. Slower, but it delivers a lasting result.

Changes are best tested with comparative tests rather than on the whole budget at once. Change one thing, look at the result, keep the better variant.

How to set up regular work

A one-off calculation gives little. The value comes when the figures are calculated at the same frequency and by the same method.

A sensible rhythm: once a week — spend and cost per enquiry by channel; once a month — returns and the share of deals; once a quarter — a decision on reallocating the budget.

An important rule: the calculation method is not changed mid-period. Otherwise the figures stop being comparable and the whole history of observations loses its value.

Typical mistakes

Counting clicks instead of money. Cheap clicks often mean cheap, irrelevant traffic rather than a profitable campaign.

Ignoring a long sales cycle. If two months pass between enquiry and payment, last month's calculation will show a loss where there is none.

Forgetting costs other than the advertising budget. The contractor's work, photography, landing page development — these are investments too.

Making decisions on small numbers. A channel with three enquiries cannot be judged either profitable or loss-making — there is simply too little data.

Frequently asked questions

What ROI counts as normal?

There is no universal norm: it depends on margins and the sales cycle. Go by your own trend and by whether the return covers all the business's costs, not just advertising.

How to measure the return on SEO and content?

The same way, but over a long horizon: the investment goes in for months, while the return accumulates and continues after the work stops. Judging such channels over a single month is pointless.

What to do if ROI is negative?

First check whether the data has been collected correctly and whether the period is shorter than the sales cycle. If the data is right, break it down: expensive traffic, a weak page or losses at the enquiry-handling stage.

Are paid services needed for the calculation?

Not at the start. Tags on links, free web analytics and a spreadsheet where enquiries and deals are brought together cover the task for most small companies.

What to do next

Take last month and calculate three figures for each channel: spend, number of deals and the revenue from them. Even such a rough calculation usually shows straight away where the budget is running idle.

We run advertising and measure returns by channel — that is advertising setup. Next, these guides will come in handy: why analytics is needed in online marketing and how to run A/B testing.