What is ROI?
November 1, 2008
“ROI” stands for return on investment. In order to understand how much to invest in your business, you must have some idea of what you can expect in sales. Sometimes finding out your ROI entails a trial campaign, and then figuring out your profits over your costs. You can tweak your investments from your results. Sometimes you will have to try several ideas before you find the areas of highest returns.
Online business or affiliate marketing is tied up in ROI as it relates to money spent on marketing campaigns versus how much in profit you make from sales. Here, you will calculate the overall cost of banner ads, pay-per-clicks; commissioned ads and content, web hosting and web design and subtract this amount from the amount of profit you can trace back to them.
Try to track all of your sales from each advertising method. If you can pinpoint the conversion rates (how many sales you make) from each individual method, you can separate the least profitable marketing methods or campaigns from the most profitable.
Keep in mind that your actual experience may exceed your expectations or you may not make as much. If a particular ad campaign is not profitable, look at the content, design and targeted audiences before giving up. If your applied research does not allow you to make a reasonable return on your investment from a particular method, drop it and choose another means of marketing your niche.
Search engine marketing makes it possible to invest very little in actual advertising and it is by far the best way to market to niches. Keywords and phrases used in articles, web content and meta tags will drive traffic to your site through the indexing of search engines. Search engine optimization is the cheapest form of advertising. When done correctly, this will account for most of your sales. The return on investment in search engine marketing should profit you greatly.
Read everything you can about marketing techniques and trends as it relates to your product or service and follow up your research with various campaigns. Hiring an experienced firm or individual to study your marketing techniques could bring a boost in sales as well. If you are not marketing savvy, the investment in a good marketer may be essential for an optimal profitability.
Once you have determined how much you can afford to invest in online marketing, you can work on improving the methods used. Sometimes a simple change in wording, target, or a new design is all you need to turn a small return into a big one.
Knowing how much of a return on investment you can expect from your marketing methods gives you all the information you need to determine whether to expand your business. Remember that the time you spend on marketing, whether as an affiliate or business owner, is also an investment. Make sure your ROI is substantial enough to pay you for your time.
Return On Investment Resources: Here are several resources for anyone trying to calculate their ROI.
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I know when I first started blogging and stuff I never worried a lot about ROI. Hell I never even knew what ROI was.
Now I look at things totally different. I now actually look at products, services or whatevers out there. I actually read all the information and see if I can get my ROI the purchase of the product.
It good you put this blog post up because I feel a lot don’t know much about ROI and how important it is to receive it back.
Bruno Auger’s last blog post..Connecting through Social Networking
Super informative pillar article for your site. There was actually a few points that I did not know about/consider with my own ROI.
Elijah’s last blog post..Internet Marketing Causes Insomnia
Excellent article and super smart to suggest SEO for beginners.
Not understanding ROI while “testing” PPC for the first time has to be one of the leading causes for newbies losing a closet full of shirts and ultimately giving up.
Dennis Edell’s last blog post..Oct.’08 Post Round-Up for Direct Sales Web Marketing
Improving your ROI can also be used for the time you spend and not just when you spend money. Getting a better ROI on yuor time will also increase your profits.
Bruno, Knowing your ROI will help you with your advertising allot! I aways calculate my ROI when I do any Pay Per Click Advertising or run ad’s online. Knowing what my return is, will determine if I continue or stop that method of advertising.
Elijah, Start keeping up with your returns! It will help you learn what benefits you the most and what is not working so well!
Dennis, your right. If more keep kept track of their ROI they woukd learn fast what methods are working and what methods are wasting money!
hi Tara,
Good post about ROI, which I’m just going to guess a lot of people don’t understand. I think it can be tough to calculate an ROI when you work for yourself blogging and your investment is your time in creating and promoting a site. It can take a lot of work to build up a site (roi=zero during that time) but if you do it right, then you can kick back and cash the checks, right? roi=infinity. Just kidding of course, but the problem it that with internet marketing the roi is not constant and sometimes takes a lot of faith…
~ Steve, aka the trade show guru, teller of trade show secrets
Steve | Trade Show Guru’s last blog post..Trade Show Secrets
[...] December 16, 2008 Every affiliate and/or pay per click marketer knows that it is one thing to attract people to a page and another to get them to click on the links and make a purchase. While getting targeted visitors to your pages helps tremendously (and we will discuss that), making the sale is the ultimate goal. In affiliate marketing, conversion rates refer to the actual number of sales generated from your specific link considering how many visitors have landed on your page. Improving your conversion rates will help you earn a higher ROI. [...]
Hi Steve,
Many people do not understand ROI. Calculating time into return on investments are hard. As marketers we often work way to much and if we did calculate our ROI on our time spent, not just money spent, it make look like some do not earn much.
A good idea is to keep track of what you do exactly. Such as make a chart of how much time you spend writing, blog commenting, promotion, ect. Then after a week, look over your list to see exactly how much time you put into those specific tasks and compare traffic stats, new visitors, ect. It will help you find out where you should be spending your time the most and the areas you need to focus on not as much to be more productive.
Many people do not understand ROI. Calculating time into return on investments are hard. As marketers we often work way to much and if we did calculate our ROI on our time spent, not just money spent, it make look like some do not earn much.