Return On Investment
Return on investment or ROI, is a KPI used in marketing which shows the percentage ratio of capital invested versus profit generated.
The term “return on investment” is derived from economics. In relation to online marketing, the ROI value is a ratio between the advertising sum used and the profit achieved through advertising on the Internet. For enterprises, the ROI value, unlike the click-through rate and page impressions, is an important tool to determine the actual economic success of advertising campaigns on the Internet.
Example
The ROI value is calculated as follows. Let’s assume a company places banner ads for 2000 EUR and generates sales of 2,500 EUR. The profit would be 500 EUR. The ROI is 0.25 percent in this case. In short: (cost of sales) / costs = ROI.
Relevance to online marketing and search engine optimization
The ROI provides a statistic for marketers and companies which makes the effectiveness of various marketing actions measurable in financial terms. In search engine optimization, an accurate determination of the ROI value is possible only conditionally, since not every sale of a product can clearly be transposed into the long-term costs for SEO. The ROI value does not include the time factor in the calculation. It can be determined if the click paths can be tracked from the organic search results, i.e. the SERPs to the product page of the store or a purchase. And thus, you can determine the SEO cost within a certain time period in relation to the profit generated during this period.
The work of search engine optimization is financially measurable that way. However, since many SEO measures do not take effect immediately, the allocation of sales to individual optimizations becomes difficult. However, it is important for the success in measurement of specific marketing campaigns or complete marketing campaign packages. Since usually a fixed sum will be estimated or spent, the customer journey can be used to comprehend how a conversion came about. It is important for advertisers and customers to define exactly what the conversion consists of (for example, a purchase or a newsletter application) and which channels are included in the calculation.
The ROI can also be used as a KPI for the evaluation of marketing actions and to set targets. This ratio provides a solid basis for budget negotiations or bonus payments for both marketers and customers. However, the ROAS is usually used in order to determine ratio between the financial resources exclusively used for ad placements versus the sales generated.