How to Calculate ROI Using This Simple ROI Formula
Calculate your return on investment
ROI. We have all heard, asked, and learned what it stands for: Return on Investment.
But what exactly is a Return on Investment and what should you look out for?
In this article, we’re going to look at what ROI is, how to calculate ROI for your business, your marketing, and of course, provide you with a simple ROI calculator.
So, what is ROI?
ROI is a formula commonly used to measure the financial returns you’ll receive from the money you’ve invested. Basically, how many dollars you’re getting back for every dollar you’ve put in. ROI provides a concise and clear snapshot to help you better determine if an investment is worth it.
Calculating your ROI is simple and is a universally understood measurement of the profitability of your potential investments.
ROI is more than just profits
Profit is what you make after subtracting your expenses from your income. Calculating your ROI does that too, with the added benefit of measuring the potential effectiveness of your investment.
What is a good ROI?
A good ROI varies by business goals and the investments you’re considering. A good ROI for me, may not be a good ROI for your business.
Even simpler: calculate your ROI and if it comes back with a positive figure, it’s likely a good investment to look into. You can use this figure to compare different investments and see which is likely to deliver better returns. Conversely, if your ROI calculation returns a negative result, this implies the investment is going to make a loss for your business, and you should steer clear of it.
Limitations of ROI
While calculating ROI is a quick and easy way to gauge the value of an investment, it’s not appropriate in all circumstances.
For example, if you perform an unpaid marketing activity (one that does not immediately earn you income) such as through an organic social media post or running a free online webinar, your calculated ROI is effectively 0%. This ROI would usually be a bad outcome but in this case, it doesn’t portray the full picture.
That’s why calculating ROI is typically reserved for investments with clear monetary sums.
How to calculate ROI
Calculate ROI with this simple formula
There are plenty of formulas available for you to calculate the ROI of your business. However, we’ve included the ROI formula that’s easiest to calculate and to understand.
(Net income earned from the investment / Cost of investment) x 100%
How to calculate ROI on your marketing spend
Marketing spend is one of the most common ROI calculations used for businesses. So let’s look at an example:
Say your business spends or is looking to spend $1,000 per month on marketing across your social and online channels. This includes social media ads, pay-per-click ads, and the like.
From this $1,000 spend, your monthly campaign ends up generating $10,000 in revenue.
Using the ROI formula — ($10,000 / $1,000) x 100% — you find that your ROI is 1,000%.
So for every dollar you spend on your marketing, you’re seeing $10 in profit.
But what if you’re looking at the ROI on marketing leads? For example:
You spend $1,000 on a lead generation campaign. During this campaign, you generate 100 new leads. This means that you’re spending $10 for every lead.
Your business makes an average of $2,000 from each customer.
If you convert 3% of these new leads into customers (which is admittedly just three new customers), at $2,000 income each, that’s a return of $6,000.
Using the ROI formula — ($6,000 / $1,000) x 100% — you get an ROI of 600%.
How to improve ROI
Outside of choosing the right assets and avenues for investment, improving your ROI comes down to refining how and what you sell.
Audit your sales process
Assessing your sales pipeline from start to finish lets you determine where your marketing processes may be holding you back.
Maybe it’s as simple as adding a new call-to-action (CTA) button leading to a sales landing page. After all, it’s been proven that a well-written, targeted CTA converts 202% better than a generic ‘Buy now’ button.
Or, it could be as far reaching as overhauling your entire sales funnel, and looking where you’re putting your marketing spend. For example, paid channels like Facebook and Google are usually proven to be the platforms with the best ROI. Is your business making the most of these channels?
Optimize your sales content
One of the best ways to optimize your sales process is to ensure you have the right sales content in place.
And it’s not just words—video content is now king. In a 2020 study, 83% of marketers surveyed found that video content has helped to generate leads. The same survey revealed that 84% of consumers surveyed said that a well-produced brand video had convinced them to buy a product. Changing the type of sales content you use in your sales funnel can make a huge difference to your ROI.
Cut unnecessary costs
One of the biggest ways to improve your ROI is by cutting back on all unnecessary costs.
This may take some time, but it can make a huge difference. For example, you might look into finding a cheaper manufacturer. Or, if you’re looking at your more holistic changes, it could be finding a more cost-effective internet provider or website host.
It can also mean looking at how you make your purchases and payments. You’re likely to be hit with unnecessary costs simply for doing your banking. Fees come in all shapes and sizes: excessive FX and international transaction costs, high bank accounts fees, and other similar expenses.
Luckily, there’s a way to cut these costs for good.
Airwallex uses better banking to boost your ROI
At Airwallex, we make it easy for you to break free of the limitations imposed by the big banks. Better products and lower banking fees mean an ever higher ROI. A simple fix like this ensures you get much better ROI when making your payments.
Our Foreign Currency Accounts empower you to create individual wallets for 11+ currencies, allowing you to send, hold, and receive international currencies without the associated fees, and avoid double conversion.
Make international payments to 130 countries, in over 34 different currencies, with no minimum transfer fees.
Airwallex Borderless Cards let you instantly create physical and virtual cards for your business as soon as your account is approved, letting you make payments as soon as you need to.
We don’t charge any monthly account fees, international fees, or withdrawal fees—ever.
We’ve also got some of the best FX rates around. We only ever charge 0.3% or 0.6% above the interbank FX rate, so you receive the best rate possible and can make a better return on your payments.
Now that’s a winning formula to calculate your ROI.
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