The coefficient roi shows. How to measure ROI and why to do it. ROI as a tool for comparing returns

13.11.2019

ROI (return on investment, swarms) - return on investment ratio - financial indicator, which characterizes the profitability (profitability) of investments in any business, project, marketing campaign. ROI is calculated as follows:

where: Profit - income received as a result of investments;
Acquisition price - the price at which the asset was acquired;
Sale price - the price at which an asset was sold (or can be sold) at the end of the holding period.

In foreign literature, in relation to marketing, the authors use two terms related to ROI (ROI):

Marketing ROI;
Return on Marketing Invest, ROMI.

This is the same thing, the meaning of both terms is the same, just some authors emphasize that ROI can be used to analyze the return on investment in marketing in the same way as in other areas of investment activity, while others clearly differentiate a kind of indicator of investment in marketing, as ROMI, inherent only in marketing.

Marketing ROI = (Total Return on Investment - Costs) / Costs x 100%;

Direct Marketing- with direct contact with the consumer (direct mail, catalog orders, Internet orders, etc.), it is possible to calculate the funds invested in marketing and compare them with the result. By changing marketing efforts and controlling the result of sales, you can achieve an increase in marketing ROI;
Sales promotion- Carrying out short-term promotions to increase the level of sales, marketing ROI is also easily calculated, since sales data are available; during the period preceding the promotion, during the implementation of the promotion and after its completion;
CRM and other loyalty programs.
Dealing with customer and consumer complaints- here the direct effect is easily calculated (a dissatisfied customer returned to you after working with him), but it is almost impossible to calculate the long-term effect, as in the case of using other marketing methods (for example, image advertising or additional service);
And some other destinations marketing activities: short-term promotions that do not intersect in time and effort, investments in tactical marketing research.

However, for most types of marketing initiatives it is impossible to calculate ROMI. For example:

As a rule, marketing activities are complex. It is impossible to break down ROI into the components of a marketing program: packaging changes, advertising, trade marketing campaigns, all together and each of the marketing events separately served as an increase in sales. Spreading the percentage of costs incurred by the percentage increase in sales in such a comprehensive program is not the right solution.
In the B2B sector, calculations of the effect of the introduction of such programs can be calculated not only by goods or sales departments, but even by groups of customers and individual customers. But in the B2C sector, this can be more difficult to do, however, information about individual loyalty promotions (for example, rewarding customers with points, discounts, goods or other incentives "for loyalty") is quite suitable for a limited period of time to determine the change in the level of sales and, ultimately , to determine the marketing ROI.
Marketing research, especially strategic, long-term monitoring, exploration, are hardly subject to analysis in terms of ROMI.

My relationship with ROMI

What is the main objective any investor? Efficiently allocate your funds and get the maximum possible profit from it. But how do you know whether an investment in a particular production will be profitable, or, on the contrary, will only bring losses. For these purposes, it is convenient to use the return on investment ratio - ROI, the calculation formula of which takes into account the net profit of the enterprise and the amount of invested capital.

If you regularly monitor the dynamics of the indicator and correctly respond to changes in its values, you can increase efficiency. financial investments, and the risk of losing investments, on the contrary, is minimized. The ROI (Return Of Investment) indicator, like other profitability ratios, is most conveniently calculated as a percentage.

What is ROI? How to use this tool correctly and what values \u200b\u200bcan be considered normal?

How to determine the return on investment

In order to determine the index of return on investment as truthfully as possible, you must try to study the return on investment as carefully as possible. financial assets. First of all, you should clearly understand the complete picture of all investor resources. This process may include several steps:

Organization financial analysis company activities.
Determining the expected size of attachments.
Calculation of key performance indicators, among which one of the main places is just the return on investment.

In the process of analysis and calculation, it is mandatory to take into account external factors factors that can affect the accuracy of indicators - changes in sales markets, inflation, the economic and political situation, and other factors.

Calculation formula

The return on investment index shows whether the income from the project is able to justify the costs that the investor has invested in this project. ROI is calculated using the formula:

ROI = PR / I * 100%

where NP is the net present value for the period of interest to us,
And - investments made during the same period.

Meaning net profit, in turn, can be defined as follows:

NP \u003d Total profit - Cost

The limit value of the indicator is 100%. If the index turns out to be greater than or equal to this value, the project can be considered successful and profitable, less than 100% - unprofitable.

In some sources, you can find an alternative designation for the return on investment index - PI (Profitability Index).

The indicator is convenient to use to assess the feasibility of the project at its initial stage.

Indicator analysis methods

In world financial practice, the analysis of return on investment is usually divided into two categories:

Discrete methods.
Methods of accounting evaluation of investments.

In order to calculate ROI as accurately as possible, an investor or company manager needs to take into account each type of cost (for marketing, advertising, product promotion, etc.). only in this case the result obtained can be considered reliable, and the forecasts made on the basis of its analysis can be considered as plausible as possible.

Optimal values of indicators

The ROI should be higher than the possible return on a risk-free investment. If this is not the case, it will simply be unprofitable for an investor to invest in such a business. Even if the risks seem minimal, a risk-free bank deposit is likely to be more attractive to a potential investor.

Profit should be taken into account not at the standard rate (before payment of all mandatory taxes), but taking into account payments.

Practice shows that the average indicator of operating assets should not be less than 15-25%, although much here will depend on the characteristics of a particular area of business. In the context of industries, you can focus on the following values of the coefficients:

Trade - 25% or more.
Construction business - 22% or more.
Industrial production - 16% or more.
Agriculture - 12% or more.

If the scores are not up to normative values, you can try to remedy the situation by paying closer attention to these areas:

Increase sales efficiency.
Increase asset turnover.

Calculating ROI (examples)

For example, a company specializes in the sale of stationery, and prefers to advertise its activities on the pages of a local newspaper and on the air of one of the radio stations. For the year, the cost of an advertising campaign is 100,000 rubles.

Whenever the company is contacted new client, he is interested in what sources he received information from. If from a newspaper or radio, then the total cost of his purchases is stored in a special account.

An analysis is made at the end of the year. For example, it turns out that in 2016 all customers who came to the company thanks to advertising brought in an income of 400,000 rubles. Knowing these numbers, you can calculate the return on investment (in this example, it will be the return on investment in advertising):

ROI = Funds Earned / Amount Spent * 100% = 400,000 / 100,000 * 100% = 400%

It turns out that every ruble spent on advertising brought the company 4 rubles of income, which is a very good indicator.

Let's try to consider the work of the ROI coefficient when buying and selling securities. Let's say we decided to invest in Google shares, and bought them for 200,000 rubles. A year later, the value of the shares increased to 240,000 rubles. How to calculate ROI in this case? Using the same formula, we get:

ROI = Funds Earned / Amount Spent * 100% = 240,000 / 200,000 * 100% = 120%

In this case, each invested ruble provided a profit of 20 kopecks after a year.

From the presented examples, it is clear that the return on investment is a universal financial tool that can make life much easier for both the investor and the head of the enterprise.

Why you need to calculate the return on investment

Determine the fate of an investment project. Before deciding to launch the next project, you should carefully consider its expected profitability and efficiency.
Compare any number of projects, choosing the most cost-effective and promising ones.
It is a universal tool for investors, helping them to correctly evaluate financial risks and expected profit.

What difficulties can be encountered in practice

Everything that was described above, on paper, looks quite simple and understandable. However, in practice, when calculating the return on investment, you may encounter some difficulties:

Estimating the size of future financial receipts may be the main difficulty. The point is that on financial system influenced (directly or indirectly) by too many factors: fluctuations in the cost of materials and raw materials, interest rates of the regulator, seasonality of supply and demand, other macro- and microeconomic factors.
Equally difficult can be the estimation of the discount rate, i.e. determination of the time value of money, which makes it possible to express future financial transactions in units of the present time.

Perhaps the video will make it easier for you to understand what it is
Return On Investment (ROI):

To determine which of the advertising channels brings you the most profit, and which of them is unprofitable, you need to constantly keep track of advertising costs. But it’s not enough just to know how much you spent on a particular channel - it’s important to understand whether investments in it pay off. You may be paying, but sales from this channel do not even recoup the amount invested in it.

ROI is an abbreviation, from English- return on investment. This is a coefficient that shows the return on investment in a particular project (including advertising). It is usually expressed as a percentage, less often you can find its expression in the form of a fraction.

A good indicator isROI 20% . If this indicator is more than 1000%, this illustrates a huge success.

Let's say a friend comes to you who opens a startup and asks for 100,000 rubles as an investment. A year later, he returns you 150,000. In this case, you not only got your money back, but also earned a little.

the cost of goods;
resulting income;
amount of investment.

ROI is used primarily in those types of business where we are talking about investments, investing money in something - for example, start-ups.

If we are talking about investments in advertising, then it is more correct to call this indicator ROMI - return on investment in marketing, that is, return on investment in marketing. The fact is that in this case it is considered according to a simple formula, without taking into account the costs, for example, for logistics, and so on.

The formula for calculating the return on investment in advertising and marketing

Each business modifies formulas for calculating ROI for itself. There are many of them, but we will focus on the most basic ones.

The simplest and most common formula for calculating ROI is as follows:

Income refers to income earned from promotional activities. That is, the purchases of those customers who came to you precisely thanks to advertising. Modern systems analytics make it easy to track and calculate this data.

Another version of this formula:

ROI= (revenue-cost)/amount of investment*100%.

This formula is often used to calculate.

With the help of ROI, you can understand how long the investment in a particular project will pay off. The simplest formula is to divide the start-up cost by the average annual cash flow which he receives. It is best suited for calculating the payback of a startup.

ROI (per period) = (number of investments by the end of the period + income for the period - size of investments) / size of investments.

But most often it is the first formula that is used - it is flexible and very simple. It can be used to calculate the return on investment:

in internet marketing entirely;
in a separate advertising channel (for example, in);
into a separate high-margin product;
for a new product category, and much more.

Let's try to apply this formula and calculate ROI for different advertising channels.

Calculation examples

Let's analyze the situation. You have an online store and three advertising channels: SEO, contextual advertising and social networks.

During the first month, you conducted an analysis and saw that (the numbers are approximate and far from reality :)):

Now we calculate the ROI for each individual channel.

SEO ROI=(7000-5000)/5000*100%=40%.

ROI SMM=(5000-3000)/3000*100%=67% (round up).

ROI PPC=(25000-10000)/10000*100%=150%.

As a result, we see a very interesting picture. If we compare search promotion and social networks, then at first it seemed that SEO was more profitable. And more customers came from there, and the income is also higher. But if we calculate ROI, then SMM turned out to be more profitable, here we returned more investments. If you pay attention to average check, then everything becomes clearer - we got better customers from social networks.

Contextual advertising paid off best - hereROI 150%, and there are the most customers from this channel. But pay attention to the average check: 25,000/100=250 rubles, while one client from social networks brings us 1,000 rubles.

In this case, you need to think about how to increase investment in SMM, and how to stimulate customers coming from contextual advertising, buy more. Perhaps you need to rethink your advertising strategy, ads or landing pages.

To do this, you need to dig deeper. But even a simple calculation of the effectiveness of each channel has already shown which one is more effective, and which one is not yet working at full capacity. Although all of them pay off - and that's good.

Try this way to check your advertising channels. Many things may surprise you.

Return on investment is one of the basic economic indicators, which investors and entrepreneurs rely on to evaluate the performance of a business, financial instrument or other asset. Since investments imply long-term investments, it is important for a potential business angel to know how quickly his investments will pay off and what income they will bring in the future.

Why is ROI calculated?

The return on investment ratio, or ROI (Return On Investment), is constantly monitored by entrepreneurs and investors with one simple goal: to determine how effectively an asset is generating income.

ROI - Return on investment ratio

ROI is a fairly versatile way to find out:

is it worth investing in a certain startup;
how justified is the modernization or expansion of the business;
how effective advertising campaign which is carried out offline or online;
whether to buy shares of a certain campaign;
whether the acquisition of a share in a mutual fund is justified, and so on.

Using indicators that are freely available and available for analysis to everyone, you can easily calculate the ROI coefficient and draw the appropriate conclusion. If ROI is less than 100%, then this financial asset is inefficient. If more than 100, then it is effective.

Usually, the following data is sufficient for calculations:

the cost of the product (includes not only the cost of production, but also the remuneration of employees, the cost of delivery to the warehouse and to the point of sale, insurance, and so on);
income (that is, profit received directly from the sale of one unit of a product or service);
investment amount (the total amount of all investments, for example, advertising or presentation costs);
the price of an asset at the time of purchase and at the time of sale (this indicator is of greater importance not for businessmen, but for investors who use fluctuations in the price of an asset - a share, a currency, a share in a business, and so on - to resell it and make a profit).

For business people, when analyzing products, calculating ROI has a special meaning. With a wide range of goods or services, analysts analyze each group of goods according to various indicators. As a result, to put it simply, it turns out what sells worse and what sells better. Sometimes business owners make interesting discoveries for themselves. So, it may turn out that low-margin products bring more income than high-margin products, although according to reports in absolute numbers, everything looks different.

Depending on the results obtained, you can develop an action strategy: strengthen those positions where the highest ROI is to get even more profit, or “pull up” weak positions in order to “pull up” the business as a whole.

There are several formulas for calculating ROI. The simplest one used by investors and marketers looks like this:

ROI = (revenue - cost) / investment amount * 100%.

The same formula can be expressed in a slightly different way if you need to value financial assets whose cost changes over time (for example, shares):

ROI = (return on investment - amount of investment) / amount of investment * 100%.

These formulas are designed for the short term, that is, they are designed to calculate the efficiency for a given time period. But it often happens that for a more accurate value of the ROI coefficient, you need to add a period. Then these formulas are transformed into the following form:

ROI \u003d (Investment amount at the end of the period + Income for the selected period - Investment amount) / Investment amount * 100%.

For some financial assets, the following formula is more appropriate:

ROI = (Profit + (Sale Price - Purchase Price)) / Purchase Price * 100%.

Thus, these formulas are flexible enough to be able to substitute most different meanings and use them in different situations for various financial instruments.

One of the simple examples of calculating the ROI ratio when you need to compare the effectiveness of selling different products in one outlet.

For example (goods and prices are conditional).

The following formula was used to calculate ROI: ROI = (profit - cost) * number of purchases / expenses * 100%.

The analysis of the received data prepares many interesting discoveries for the owner of the outlet. So, the sale of bicycles to him is clearly unprofitable, scooters are profitable, and skates do not bring any expense or income.

In order to correct the "weak" position, he needs to either reduce costs (for example, find a cheaper supplier) or increase the selling price. As for the skates, then you need to think about it. If it is summer, the number of small sales may be justified by the fact that it is “out of season”. In the autumn it will be necessary to carry out similar monitoring again.

For stocks, the calculation of the ROI coefficient will be as follows.

We use the formula ROI = (Dividends + (Sell Price - Purchase Price)) / Purchase Price * 100%.

From the analysis of the above table, the shareholder can draw several conclusions. Even though the price of a share may have risen, not receiving dividends on it results in a low ROI, despite the fact that the transaction as a whole looks profitable. Conversely, receiving dividends resulted in a large ROI despite the fact that the value of one share decreased.

This example perfectly illustrates the basic principle of investing in stocks: their longevity.

Advantages and disadvantages of ROI

The ROI helps investors and potential business owners evaluate how effective a project is. The higher the ROI, the more attractive the project looks in the eyes of other financial market participants.

In addition, the profitability index has several more pronounced advantages:

takes into account the time factor, that is, the change in the value of assets over time, the profit received during the measurement;
considers the sum of all effects from investments, and not just short-term profits;
allows you to adequately evaluate projects with different scales of production or sale at the same level, for example, a large factory and a small workshop, a boutique selling fashion handbags and a clothing hypermarket;
allows you to take into account in your formula the interest that you have to pay for the use of borrowed funds;
a flexible formula allows you to use various indicators and modify it depending on the need.

However, this ratio is not without drawbacks:

by itself, ROI does not give any assessment of the profitability of a business or a financial instrument (which is clearly seen in the example of stocks);
the ROI coefficient does not take into account the effect of money depreciation;
it is impossible to predict the percentage of inflation, so long-term forecasts are rather vague (but you can rely on the average annual percentage of inflation).

The ROI value, together with other indicators, allows you to reasonably assess how profitable a financial instrument will be and whether it is worth risking your money and time to invest in the next project.

Hello everyone!

Any entrepreneur must understand what the result of his monetary investment in something is: whether it is advertising or the purchase of new equipment that would reduce the cost of the product. To understand this, it is enough to use the ROI formula, which will show how efficiently any other traffic channel, or something else, in which you have invested, works.

ROI (Return On Investment) is a measure of return on investment. There are several varieties of this indicator, but we are only interested in one - marketing ROI, or to be more precise, ROMI (Return On Marketing Investment).

For calculation ROI formulas we need the following data:

Income. What you have earned from the sale;
Cost price. The sum of all costs for the production of the product, its transportation and others;
Investments. How much money you have invested in a particular advertising channel.

Let's get down to business.

ROI - calculation formula

ROI = (Income - Investment Amount) / Investment Amount * 100%

Using it, an Internet marketer can understand how effectively an advertising campaign (AC) is working. After all, the profit from the AC is what any advertiser strives for, and all other indicators such as CTR do not play any role at all.

The above is one of the varieties of ROI, but you can also calculate the return on investment, taking into account the cost of the product:

ROI = (Revenue - Product Cost) / Investment Amount * 100%

Now you will see both your real profit and how the advertising campaign pays off.

ROI Calculation Example

Let's move on from theory to practical actions. Let's imagine that you use three advertising channels:

. You spend 15,000 rubles / month on it;
. Here you invest 15,000 rubles / month.

At the same time, sales per month reach 50 orders, and each channel brings the following number of orders:

Yandex.Direct — 18 orders;
Google Adwords - 15 orders;
Advertising in in social networks- 17 orders.

One order brings us 2,500 rubles of net profit, taking into account all expenses. From here it turns out that each channel brings in a month:

45000;
37500;
42 500.

Based on these data, we will make the following calculation for Yandex.Direct:

ROI = (45000 - 15000) / 15000 * 100 = 200%

The ROI for this channel is 200%. This means that 1 ruble invested in Direct brings us 2 rubles.

For all other channels, the results are as follows:

Google Adwords - 150%;
Advertising in social networks - 183%.

What do the numbers tell us? And they tell us that Yandex.Direct, with an equal budget with other channels, is more profitable, therefore, we can safely increase the budget for this channel, from which we will only benefit.

When calculating this indicator, it is important to remember one thing: the higher the ROI, the better. So if the return on investment is< 100%, значит вложенные деньги не окупаются должным образом при использовании определенного рекламного канала. Но в нашем примере, получается, что все каналы окупаются, но самый эффективный из них — Яндекс.Директ.