How to calculate the ROI (Return on Investment) of ads

ROI (Return Over Investment) can be translated as Return on Investment and, as the name suggests, refers to the financial result obtained from certain actions. Its formula is very simple:

ROI = Profit – Investment / Investment

Today we're going to see how to calculate the ROI of internet ads, whether on Facebook Ads, Google Ads or any other platform.

Tip: before calculating your ROI, it is always recommended that you establish your Digital Marketing goals, because it is from this comparison (results x goals) that you and your team will be able to decide the next actions with greater effectiveness.

How to calculate ad ROI the right way

When a marketing manager asks the directors of a company for a budget for a certain action, the first question that the “owners of the money” ask is: what will be the return on this?

You should also think this way when setting up your campaigns – which is why learning how to calculate the ROI of these actions is so important. After all, ads on the internet are not just for your brand to “appear more” but, mainly, to increase your sales.

To calculate ROI, a simple formula is used that relates the capital employed and the value obtained from this investment:

ROI = Profit – Investment / Investment

In the end, the result of this calculation will demonstrate whether the investment really paid off. In digital marketing, “profit” can be measured in several ways, such as increased online sales, increased audience, valuable interactions, capturing qualified leads and other factors.

Everything will depend on the goals you want to achieve with Digital Marketing.

Practical example of calculating ROI

Suppose that the monthly investment to advertise on Facebook was R$10,000 and that, at the end of 1 year, the profit obtained from the increase in online sales was R$80,000. In the equation, the numbers look like this:

80,000 – 10,000/10,000 = 7

The ROI is equal to 7. And what does this mean? That, at the end of 12 months, the businessman's profit was 7 times greater than the investment. An excellent scenario, don’t you agree?

Now, imagine that you invested R$1,000 to sponsor, for 30 days, a publication related to the sale of a product. At the end of the period, you find that 15 units of this product were sold, with a sales value of R$350.00.

In this case, the profit obtained was R$5,250, but you can identify, based on the platform indicators in this ad, that only 2 sales were made from the sponsored post. In other words, the revenue from this advertising did not even cover the amount invested in it.

Given this, we can dispense with the formula, as the ROI was certainly negative. And when the ROI is expressed by a negative result, don't get discouraged at first. Treat the feedback (or lack thereof) as a warning to review the strategy. All digital actions need to be realistic.

Therefore, you need to understand the limitations not only of the advertisement, but also of the company itself, before investing.

Tips for increasing ROI with ads

Knowing how to calculate ad ROI can be a little difficult at first, but believe me: practice makes perfect. Below we give you four golden tips to increase your return on investment when creating your digital marketing actions:

• 1. Generate reports with the ROI of each invested action. This will help you establish benchmarks to compare your current results with those of previous months;
• 2. The effectiveness of ROI is enhanced when we evaluate short-term periods, since, generally, the company does not consider inflation in its calculations;
• 3. Test different types of digital marketing actions, such as Facebook ADS and Google Adwords, and compare them to find out which one generates a more satisfactory ROI for you. The secret is to discover what works best for the reality of your business;
• 4. Optimize the conversion of your networks. Your website's conversion rates are related to ROI – and you need to take this into account when investing in ads.

Numbers always tell us where we really are and what the possibilities are of getting where we want. Therefore, paying attention to ROI makes it possible to paint future scenarios based on today's events. Planning goals based on manageable results, observing previous results, is therefore essential.

Furthermore, analyzing advertising ROI also allows you to estimate the time needed for an investment to start generating a return, making a company's objectives increasingly realistic.

If this post helped you understand how to calculate ad ROI, stay with us a little longer to resolve other digital marketing questions. Our tip today is that you also read the article about the 4 main beginner mistakes in Facebook Ads to start investing in this promising platform with a positive ROI.