How Do You Calculate ROI?
September 27, 2011
Perhaps a better question is do you calculate the return on your investment in marketing initiatives? If so, which method do you use? Below, we offer a variety of formulas commonly used in the marketing industry.
Each of the three formulas begins with the gross profit or customer lifetime value of the initiative. From that number, you subtract the overall cost of the marketing investment (this can vary by definition), and divide the resulting figure by the same marketing investment number. Since ROI is generally measured as a percentage, you will multiply that number by 100. For example, if the gross profit was $15,000 on a marketing investment of $4,500, the ROI calculation would look like this:
$15,000 – $4,500 = $10,500 / $4,500 = 2.33 x 100 = 233% ROI
Basic Marketing ROI Formulas
1. Gross profit (GP) for units sold:
Gross Profit – Marketing Investment
2. Customer lifetime value (CLV) instead of gross profit:
Customer Lifetime Value – Marketing Investment
3. GP or CLV minus marketing investment and overhead:
Profit – Marketing Investment – Overhead Allocation – Incremental Expenses
For more information on how to calculate ROI, please email BroadBased CEO, Jan Korb.