One of the key metrics in the business and marketing field is return on investment, or ROI. ROI helps marketers decide if an investment is worth the effort, whether they are evaluating the marketing campaign, a new product or service launch, or a financial opportunity. ROI helps measure success by showing profit or loss compared to the investment.
ROI helps performance marketers utilizing platforms like Trackier figure out which partners, campaigns, or channels are bringing value.
Let’s look at the return on investment in detail, how to calculate it, and how to increase your ROI. Let’s get started!
What Is Return on Investment (ROI)?
Return on investment is a performance measure that is used to determine how efficient or profitable an investment is. ROI simply measures how much return you get per dollar (or currency) you spend. It is widely used in the field of digital marketing, real estate, finance, and business.
In performance and affiliate marketing, ROI is applied to:
- Evaluate campaign performance
- Compare affiliate performance
- Justify marketing spend to stakeholders
- Optimize budgeting
In campaign analysis, return on investment helps marketers connect campaign expenses directly to results such as conversions, sign-ups, or revenue.
A return on investment example is that if Campaign A has a higher ROI than Campaign B, it is more likely to be cost-effective.
Return on investment ROI can be used interchangeably, especially in marketing. Depending on the field, ROI can also indicate time saved, improved productivity, or other measurable results other than financial gains.
How to Calculate Return on Investment (ROI)
To understand how to calculate return on investment, use this simple formula:
Return on investment formula:
ROI = Net Profit (Gain from Investment – Cost of Investment) / Cost of Investment x 100
Let’s take an example to understand better, suppose you invested $300 into a digital ad campaign and it generated $400 in revenue. The net profit is $100.
So the ROI will be = 100/300 x 100 = 33.333%.
This means your return on investment is 33.33%, which indicates a profit.
You can also modify the formula according to your objective. For example, ROI in marketing may prioritize conversion rates or lead generation over revenue alone.
What Is a Good ROI?
The industry, the level of risk, and the type of investment influence a “good’ return on investment. While a positive ROI usually signifies a good investment, there are variations in what is considered a good ROI.
- Depending on the health of the market, stock investments tend to have a return of 7-10% per year.
- In real estate, 8-12% per year is considered stable.
- A 5:1 ROI in marketing, or $5 for each $1 invested, is often considered a good ROI.
- A 300% return on investment is considered sound in digital marketing.
- In extremely optimized or viral campaigns, a 10:1 return on investment might be attainable.
A good return on investment ROI in affiliate marketing also relies on margins and payment models (CPA, CPS, and CPL). The ROI must be continuously aligned with the company’s objectives.
How to Increase Your ROI
Knowing how to increase your return on investment is as important as initiating campaigns in performance-driven marketing. Technology, strategy, and testing all go into improving ROI. Let’s look at the top strategies that you can utilize to increase your ROI.
1. Use Performance-Based Marketing Models
Using performance-based marketing models of marketing, such as cost-per-acquisition (CPA) or cost-per-sale (CPS), is one of the most successful methods to increase ROI. These models make sure that you only pay once a specific action is done, such as a sale, signup, or purchase. This method eliminates the wastage of budget on useless impressions or clicks and directly connects spending with results.
Tools like Trackier make such models easy to apply across affiliate and partner channels, helping marketers to increase efficiency levels.
2. Set Clear, Measurable Goals
If marketers are unable to measure their goals, they cannot improve them. Goals that are too general make it challenging to properly track ROI. Instead, assign a definite, measurable KPI to every campaign, such as an objective to get 500 leads for $10 per lead or achieve a 3x return on ad spend within 30 days.
Having well-defined objectives lets marketers spot problems quickly, coordinate strategies, and track campaign performance in real-time.
3. Optimize Underperforming Channels
Not all marketing channels give the same return on investment, some might drain the budget without driving conversions. Monitor every channel’s performance metrics, such as CTR, conversion rates, and cost-per-conversion, to take appropriate action.
Once the underperforming channels are identified, a suitable action can be taken. Either pause it, shift the budget to high-performing channels, or modify the strategy. Optimization is an ongoing process for making sure every dollar spent is creating value.
4. Run A/B Tests
One of the simplest methods to increase ROI is through A/B testing. Marketers can find out what works best with their target audience by trying various headlines, images, CTA, landing page layouts, and even audience segments.
ROI can be greatly improved by making small changes, such as increasing the landing page conversion rate by even 1%. Testing one item at a time, measuring the results, and implementing the successful version are essential.
5. Use Data-Driven Attribution
Increasing your return on investment depends on understanding what causes conversions. From the first ad click through to the final purchase, smarter attribution models help to assign value to each touchpoint along the customer journey. Without attribution, marketers might overspend on top-of-funnel channels that build awareness but do not bring sales.
Calculate the return on investment of each campaign, channel, and partner with data-driven attribution. Multi-touch attribution especially gives a better picture of how different components interact with each other, helping to allocate funds to high-performing initiatives and eliminate low-impact spending.
6. Automate Reporting
Manual reporting slows down insights and decision-making. This harm may have been caused by the time marketers observe a decline in ROI from their spreadsheets. Marketers can track how their campaigns are working in real-time and respond right away when they automate their performance reports.
Apart from sending performance updates on a daily or weekly basis and notifications when KPIs fall short, marketing automation software can also generate custom reports. This way, every marketing decision will be backed by current data and will free up time for strategic thinking. Detailed reports lead to faster responses and are a guaranteed way to increase your ROI.
7. Smarter Targeting with Segmentation
Mass marketing is no longer relevant; customers now look for personalized experiences. The message can be customized to the audience’s interests by dividing them based on their behavior, demographics, past purchases, or engagement.
Targeted campaigns are more relevant and have better click-through rates and conversion rates. That means more impact for each dollar spent and a stronger return on investment.
Bottom Line
Monitoring expenses, setting measurable goals, and measuring performance continuously through the use of the ROI formula are the initial steps towards maximizing return on investment. Whether you are launching a new campaign or reviewing existing strategies, measuring ROI helps in understanding what works and where a few adjustment are needed.
Another thing is to make sure that accurate data is being collected, set success metrics, and measure the results of different activities. Make use of this data to eliminate underperforming activities and focus on those with the greatest value.
By automating campaign tracking, measuring results in real-time, and providing detailed insights that promote profitable growth, Trackier helps marketers eliminate uncertainty around return on investment.
