Understanding return on investment

A study released by Statista showed the estimated amount to be spent on digital advertising in 2021 will be $389.29 billion. That is an increase from $332.84 billion in 2020. The study also indicated digital advertising spending will grow to an estimated $526.17 billion in 2024.

Because of that, we have to be more aware of our return on investment or ROI.

The ROI is just that, understanding your return on your investment in an advertising campaign. One warning: it is an estimation. But, it is a valuable source of information to see what you're spending is worth it.

ROI can be calculated in a couple ways:

• ROI = net return on investment / cost of investment x 100%
• ROI = final value of investment - initial value of investment / cost of investment x 100%

Another way to look at it is:

• ROI = sales growth - marketing cost / marketing cost x 100%

Or:

• ROI = Return - expenses x 100 / expenses

So, for example:

If you spent $500 on an ad campaign and it netted you $1,500 in sales, here's what the ROI would look like:

• 1,000 (difference between income and expense) / 500 x 100% = 200%

Or, if you spent $500 on an ad campaign and it netted $600 in total sales:

• 100 / 500 x 100% = 20%