ROI, an English accronym which refers to Return on Investment, is a financial metric that is based on the relationship between money earned and money invested in a specific strategy. This metric is widely used in the digital marketing industry to evaluate the investment made in campaigns.
Understanding what ROI is about is one of the first steps to making investments in a conscious way, always aiming at the development of your business. Below, you will find a complete content to understand more about sales and customer metrics through this indicator. Check it out!
What is the importance of ROI and how to measure it strategically?
ROI indicates a company’s financial return on every investment action it takes. This metric shows whether the gain makes the cost worthwhile.
For ROI to be applied strategically, it needs to answer a few questions. They are:
- What are the company’s major sources of profit?
- What are the most effective communication channels?
- Are the marketing campaigns bringing the expected return?
- Has the sales process been efficient?
- Has customer service helped build customer loyalty or is it lacking?
How to calculate ROI?
The simplest and quickest way to calculate ROI is using its formula:
ROI = [(revenue-cost)/cost] x 100
ROI measures the percentage of return that an investment brought in compared to the initial costs. This is the difference between the earnings obtained with an action and the amount initially invested, divided by this invested amount.
Once you have calculated the ROI, it is important to know how to evaluate it in order to understand the return on your investment.
When the result of its calculation is positive, it means that there was a profit, and if it is negative, it means that there was a loss in the investment. However, ROI can be associated with other parameters for a better understanding of the correct investment of the funds.
What are the advantages of working with ROI?
As said, ROI is one of the metrics that should be analyzed to check the health of your brand. The careful analysis of the data collected identifies the company’s main sources of income, so that actions can be taken to improve sales on a permanent basis.
In addition, ROI has other advantages, as it:
- enables the realization of an action plan, because it identifies which are the company’s best investments;
- boosts profits, because it ensures that the available funds are used in the best possible way;
- follows the evolution of the company, because it broadens the owner’s understanding of the growth of the enterprise;
- measures results, because it transforms the relation effort vs. result into numbers
- facilitates decision making, because it supports the entrepreneur in the management of goals, contributing to cut unnecessary expenses in the company.
ROI is an excellent ally for your business to increase profits and decrease expenses.
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