What Is Return on Investment (ROI)?
Your return on investment (ROI) is a metric that shows you the amount of money you either gained or lost for a specific investment.
In terms of business, ROI is often associated with the effectiveness of your marketing strategies. However, you can measure the ROI of various business initiatives and investments, like software tools and services.
How to Calculate ROI for Your Business: The ROI Formula
Let’s look at how to assess the ROI of your marketing efforts. You want to measure specific tactics so you can see the return for each one you invest in.
For example, PPC campaigns can show you exactly how much your advertising returns in terms of impressions, clicks, leads, and sales deals closed.
The basic formula you can use to calculate marketing ROI is as follows:
[((number of leads x lead-to-customer rate x average sales price) - cost or ad spend) ÷ cost or ad spend] x 100
As you can see, you need to know:
- The number of leads you earned
- The percentage of leads who became customers
- The average price of your product or service
- The amount you spent on the tactic
This provides visibility on all the tactics you’re using.
How Tracking ROI Steers Decision Making
When you track this metric, you can guide your strategy in a way to maximize your return on everything you do.
Let’s look at a quick example of how companies use marketing ROI to guide their planning.
An HR software company paid its internal content marketing team to write five blog posts about the importance of using software to ensure compliance. Their paid media specialist spent $100 on targeted ads to promote their content.
Their employees cost $900 total to create the blog posts and promote them. They earned a total of eight leads, with four of them turning into customers, the average revenue for each new client being $2,000.
Using the ROI formula, the company can see a $700 return:
[((8 x 0.5 x $2,000) - $1,000) ÷ $1,000] x 100 = $700
This should inform their strategy. They can train their team to create more content at a faster rate or reduce their ad budget and see if they can yield more revenue.
What to Track With Reporting
Your ROI assessment and reporting strategy can be tailored to whatever you need it to be. Some of the most common business reports include:
- Social media marketing performance
- Paid ad campaigns performance
- Content marketing performance
- Landing page performance
- SEO campaign performance
- Email campaign performance
- Sales call outcomes
- Sales activity leaders
- Deals closed vs. goals
- Contact lifecycle funnel
- Meetings booked report
- Time in deal stages
As you develop your reporting strategy, make sure you have the right software tools in place.
HubSpot Reporting Dashboards: Your Best Option for ROI Assessment
Reporting is key to how your business calculates ROI and evolves strategy over time. And with HubSpot reports, you can get all the data you need.
You get access to a bird’s eye view of all your marketing, sales, and service data. You can build customized report dashboards for all your teams.
For example, your sales team can look at the length of your sales cycle by evaluating reports for average days to close. This dashboard example is organized by contact owner.
Make the most of your business software by looking at reporting features and learning how to build valuable reports.