Use this Digital Advertising ROI Calculator to evaluate where your campaign needs to be for it to be profitable. It takes into account the cost of products and other direct advertising expenses, giving you a more realistic ROI estimate than what one would typically find in Facebook/Twitter/Google Ad managers.
What Is Return on Investment?
Return on Investment or ROI is the amount of money remaining after accounting for all expenses. These expenses include cost of goods, tools/software subscription, amount paid to agency/freelancer for creating and optimizing ads, and any other direct expenses involved in the campaign.
Do not confuse Return on Investment (ROI) with Return on Ad Spend (ROAS). ROI is a financial metric that takes all expenses into account, whereas ROAS is a more direct advertising metric calculated against ad spend.
How To Calculate ROI?
Find your ROI by subtracting the revenue generated from Ads from the sum of all expenses, divided by the sum of all expenses.
ROI = (Revenue - Expenses)/Expenses
Here revenue is the total net sales; investment is the sum of all expenses, including advertising cost, cost of goods sold (COGS), and agency fee.
You can go one step ahead and also account for the time spent on marketing and advertising efforts. This would be the combined hourly rates of the marketing team multiplied by the number of hours spent on the campaign.
Let's say your campaign generated $100,000 in revenue after spending $25,000 on Google Ads - That's a ROAS of 300%.
Blended Margin: 50%
Time Spent: 4 Employees at $120/hr for 45 hours
Total Cost: ($100,000 x 50%) + ($120 x 45 x 4) + $25,000 = $96,600
Return on Investment: 3.52%
When you account for time invested, this campaign is barely profitable. Drilling down profitability to minute details gives an objective overview of performance and uncover opportunities for better optimization.