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Internet Marketing Return on Investment (ROI)-A simple calculation

February 28th, 2013 by gtowsley Leave a reply »

ROI-Return On Investment

As a business owner in Plumbing or otherwise, who is cognizant that more and more customers are searching the Internet to purchase goods and services and is responding to this phenomenon with a strong Internet marketing presence, it is extremely important to have a meaningful metric to measure the effectiveness of the various Internet advertisement strategies that you are employing or with the many other forms of advertising that you may employ to drive traffic to and ultimately sales from your website. That metric is ROI and it is a simple calculation with all of the metrics available for one’s website via Google Analytics. As an Internet marketer for plumbing and other types of business, we at Grow Plumbing are excited to help explain this calculation and the significance of performing the ROI calculation for your Internet marketing campaigns.

In its simplest form, ROI calculation is:
((Net Revenue – Marketing Cost(Investment)) / Marketing Cost(Investment)) * 100%

Typically, ROI is computed or averaged over a period of time, such as a month or a year. There are 4 questions that need to be answered to perform the calculation:
1. What is the goal?
2. What is the $ value of the goal.
3. What is the rate or frequency of achieving the goal over a given period of time?
4. What is the marketing cost(Investment) of achieving the goal over the same period of time?

From these questions, one can calculate the difference between net revenue and marketing cost. Then you take the difference and divide it by the marketing cost and multiply by 100%.

Net Revenue is typically calculated from knowing the $ value per goal and the frequency or rate of achieving the goal over a specific period of time and multiplying those two factors. Marketing cost(Investment) is the $ cost of the marketing campaign over the same specific period of time. Here is an example:
Let $X/goal be the revenue from achieving a goal
Let Y/month be the monthly rate of achieving goal
Let $Z be the monthly cost of the marketing campaign

Then monthly ROI = {[(($X/goal) *(Y goals/month)) – ($Z/month)] / [$Z/month]}*{100%}
Even though the formula appears complex, it is a simple calculation. An example of a monthly ROI calculation is:
if X= $10/goal, Y = 100goals/month, Z = $800/month,
then:
monthly ROI ={[(($10 *100) – ($800)]/[$800]}100% = {[($1000) –($800)] / [$800]
}* {100%} = 25%

 

There are many ROI calculators available that will make it easy to calculate one’s ROI. One such tool is from The Intuitive Websites organization and a video discussing their tool can be found at http://www.youtube.com/watch?v=PjnAulN8wNY . HubSpot has written a Blog, titled “Top 5 Metrics for Auditing Your Social Media Marketing ROI” that describes many of the metrics or factors that go into the determination of net revenue and other factors associated with Internet marketing.

Using ROI as a metric to measure the performance of a specific campaign allows one to measure the relative performance of alternate marketing campaigns such as PPC or email marketing which then allows one to tailor one’s marketing for the best return on one’s Internet marketing dollars.
With Google Analytics, ROI calculators, and other information available online, using ROI as a measure of the effectiveness of your Internet marketing campaign alternatives is so easy and so vital to one’s website and business success.

For more information about how a ROI calculation can effect your plumbing business or any business that employs Internet marketing, contact Gregg at 310-546-1980 or at Grow Plumbing.

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