Return on investment (ROI) is a ratio between the net profit and cost of investment. As a performance measure, ROI is used to evaluate the quality of an investment or to compare the efficiencies of several different investments.
Marketing decisions have an obvious connection to the profits, and many marketing managers find “return on investment” a very useful metric. However, marketers should understand the full extent of what is included in the return and the investment parts of the equation.
Indeed, the equation is very simple:
ROI = Net income / Investment
ROI = (revenue − cost of goods sold) / cost of goods sold.
But when considering digital advertising for eCommerce, the calculation may be a little more complex. For example, companies may consider long lasting brand recognition and improved SEO as a return on marketing investment even though hard to measure directly. For example, a successful paid-search campaign may elevate SEO and direct traffic and the campaign effect will last longer than the actual campaign duration. In such a case, proper ROI measurement would need to consider calculating the numerator (net income) over a longer period of time and the resulting ROI would be higher than a simple computation would show.
UpFront analytics Marketing ROI vs ROMI (Return on Marketing Investment).