What is the formula for calculating roi. What is ROI - a formula for calculating the return on investment in a project. Why is ROI calculated?

ROI (return on investment)- an indicator of the effectiveness of your investments in the business, literally - return on investment. The basic formula is simple:

ROI= (Income from investments - Size of investments) / Size of investments x 100%

By “Income from investments”, you, depending on the tasks, can mean Gross profit or Net profit (excluding taxes, penalties, loan payments).

Consider the simplest example of the formula for calculating ROI: you invested a ruble and as a result earned 3 rubles - your ROI is 200%. If you invested 2 rubles and earned 1 ruble, ROI = -50%. Returned less than invested - you get a negative ROI.

ROI is a useful business intelligence tool. If you're looking for investors for your business, the first thing you'll be asked is an estimated return on investment.

What is considered a good ROI?

For different businesses, this indicator is different. Definitely, for a break-even enterprise, ROI must be positive. When drawing up a business plan, read case studies, consult with experts in your field, study statistics.

When calculating the return on investment, take into account time indicators. Seasonality, crisis phenomena can affect the level of ROI for different industries.

What is ROI in marketing?

ROI in advertising - what is it? The same as the usual ROI, but we only consider investments in marketing. Marketing ROI, aka ROMI (return on marketing investment) shows the payback of advertising. We, as an Internet company, deal specifically with ROMI.

A simple ROMI formula looks like this:

Let's decipher:

ROMI= (Gross Profit - Marketing Costs) / Marketing Costs x 100%.

Gross profit (monthly) = Average number of purchases (monthly) x average price Product x Margin

Average number of purchases (per month) = Number of clicks to the site x Average conversion

This universal formula will help you understand how to calculate roi in contextual advertising, SEO, with complex promotion.

Example of calculating ROI for SEO

Here is an example from life - ROMI calculation for our client's SEO promotion. We do these calculations every month.

Return on marketing investment was 337%.

Pitfalls of ROMI

ROMI is a useful indicator, it is convenient to analyze and summarize with its help, but you should not rely on it entirely. Be careful and consider different factors:

Sale cycle

For some transactions, the client makes a decision for more than one month. Your client could see your advertisement in January, and make a deal in August. Costs are written off in one month, profits are accrued in another - and it's good if you are careful with statistics and link the deal with the initial circulation and its source. You will calculate ROMI for a month, but how much it reflects the real picture is a question.

A good illustration is the story of one of our clients. The company sells and leases retail space in the city center. The areas are large and expensive, the decision on the transaction can be made for six months or more. At the same time, the profit from one transaction covers all marketing costs for the year. For such companies, counting the return on investment ROI every month is meaningless. Therefore, we focused only on the quantity and quality of requests that came from advertising.

Average check and profit

For some sales it's hard to define average check- too large a spread of amounts for different transactions. Also, the amount of profit for transactions that are the same in amount can jump (reasons: different delivery conditions, changes in logistics costs, etc.). Averages are difficult to determine.

Sale

Profit is affected not only by advertising, but also by the customer. For example, the company left the leading employees of the sales department. As a result, the rate of completion of transactions decreased, as a result, ROMI also decreased, but these changes are not directly related to advertising.

Let's take an example. New contractors expect you to increase ROMI from 200% to 400%. To fulfill their promises, they disable the context for all low-margin items. As a result, ROMI grew and sales fell. In reports - beautiful, for business - unprofitable.

conclusions

Therefore, when concluding an agreement with a client, we do not predict ROMI, but the cost of leads.

Calculating ROI will help you evaluate the effectiveness of your advertising, as well as the advisability of taking risks in your business.

Creating an online store, or any similar business, is often subject to certain risks and trials. Conducting advertising campaigns clearly demonstrates which of them have a high payback, and which, on the contrary, are ineffective.

By investing time, money, effort, and often all of the above, you expect tangible results. This is where the term ROI (Return on Investment) comes from, which is an indicator of the return on investment. More broadly, ROI is financial indicator, which allows you to estimate income from certain investment costs.

ROI= (Profit - costs) / costs * 100%

This formula helps you analyze the cost of a growth opportunity for your online business.

Examples of calculating ROI for various business tasks

Now we will look at examples of how to apply this formula in practice. To date, there is no single standard method for calculating or applying ROI for ecommerce. In fact, you can calculate the payback of any business, as shown in the following examples.

Example #1. Getting a small business loan

Loans in this category allow you to finance everything from developing a new product line and purchasing equipment to paying for day-to-day expenses. However, there is bad news - such loans are not free and you need to calculate in advance the cost of this type of financing, and how its use will affect income in the short and long term.

Business is growing and at the same time, it becomes difficult to control the availability of goods on (virtual) shelves. "Out of stock" is becoming a common sight in your online store windows, and you have to purchase additional goods and equipment to keep up with growing demand.

When making calculations, it turns out that an amount of 55,000 rubles is required for the purchase of goods. You have been granted a term loan for this amount with a two-year repayment period at a fixed interest rate of 15% and a 3% commission to the bank for granting the loan.

Such loan fees lead to the conclusion that the final interest rate will be 18.13% (which sounds quite expensive at first sight). 2,666 rubles will be a monthly payment on this loan.

However, all the calculations performed show that the purchase of additional equipment will increase the company's income by 6,000 rubles. Obtaining this loan will not only cover the monthly payments on the loan, but also bring additional income of 3,333 rubles.

The formula for calculating ROI for this example will look like this: ROI = (3,333 - 2,666) / 2,666 = 0.25 or 25%

Despite the fact that the actual interest rate on the loan exceeds 18%, the return on investment of 25% will allow you to receive additional profit.

Example #2. Website redesign

The design of an online store can increase, or vice versa, negatively affect sales. In fact, most online shoppers trust a site based on its design alone. You might think my website is doing a good job! And if investing in a website design update may seem like a luxury—especially when there isn’t enough financial resources- you need to remember about the possible profit and return on investment - this is ROI.

If you look at an example in which we simply modernized the site and improved its interface, you can see concrete results.

A relatively simple method for evaluating the return on investment in this situation is to compare the cost of updating a site or personalization solutions in relation to the income generated from this investment.

For example, if you take a portion of the business's annual budget and pay $4,000 to upgrade the store at the beginning of the new year, which will increase your monthly revenue by 294% (as in the Halo Headband example) to $11,760 in January: ($11,760 - $4,000) / $4,000), where the return on investment will be 194%.

Using the ROI formula ($141,120-$4,000/$4,000) results in an ROI of 3428%.

Thus, redesigning a site can be a very promising idea if the current design has not been updated for a long time.

Example #3. Marketing ROI Formula

Marketing is an integral part of running an e-commerce business. It is very important to make sure that the brand is visible, there is a clear connection with target audience and investments in marketing are used to the maximum.

There are several various ways to conduct ROI calculations from a marketing point of view. For example, an increase in sales of a certain category of goods can serve as a criterion for the effectiveness of a particular marketing strategy. Let's take a look at several advertising channels as an example.

It is worth paying attention to which of the advertising channels bring high, and which of them low levels of income. In particular, the example shows that it makes sense to direct the Vkontakte targeting budget to Yandex.Direct or SEO if these channels can still be scaled in your project, as they provide a better return on investment (more profit).

Calculating ROI: non-obvious benefits

By and large, the payback calculation has a number of advantages from a financial point of view, but it is worth considering a number of non-material advantages when investing. Let's look at a few examples to illustrate this:

• Example #1: If a product is out of stock all the time, there is a risk that the company will not only lose revenue, but will most likely lose customers as well (or at least decrease customer satisfaction). Customers must be sure that they can rely on your store, otherwise, they will go looking for products in other stores.
• Example #2: Compared to a modernized site, an outdated site gives the impression that it is insecure and unreliable, which stops potential customers from making purchases in your online store. Moreover, they provide tools for more efficient work with the site. As a result, website modernization saves your valuable time, the website becomes more customer-oriented and increases sales.
• Example #3: Marketing helps to capture the attention of potential customers by converting them from consumers (those who only buy once) to buyers (those who shop on a regular basis). Marketing also affects brand awareness. All of the above points to the importance of investing in a brand.

It is very important to think big, not limited to the financial side of running an Internet business; positive experience and customer satisfaction, effective brand development, time and effort - all of the above should be taken into account when calculating 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 the average bill, 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 is an advertising campaign that 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 ROI ratio 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 suitable:

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).

To calculate the ROI formula, we need the following data:

1. Income. What you have earned from the sale;
2. Cost price. The sum of all costs for the production of the product, its transportation and others;
3. 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:

1. . You spend 15,000 rubles / month on it;
2. . 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:

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

One order brings us 2500 rubles net profit including all costs. From here it turns out that each channel brings in a month:

1. 45000;
2. 37500;
3. 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.

What to do with campaigns based on this data?

Based on the data obtained, using the ROI formula, we can do the following things:

• Adjust the budget for advertising - increase or vice versa decrease;
• Adjust cost per click;
• Expand Used