How to Calculate the Return on an Investment (ROI)

Returns on marketing investments must exceed expenditures.

Return on investment (ROI) can be calculated from the average cost of marketing compared with estimates of revenue generated from new and repeat customers and sales.

Typical internet marketing expenses include (see Prices)

• Capital expenditures, e.g. for website development (average lifetime, ~3 years)
• Maintenance and management costs (hosting and site maintenance)
• Content promotion and list maintenance (blog and Facebook posts)
• Campaign expenditures (e.g., Google adwords or Facebook ads)
• Semi-annual reviews and updates (e.g., site revisions)

Example Monthly Calculation (hourly cost = $?)

• Directory and maps listings (5 yr lifetime): 8 hrs ($?/mo)
• Website construction (3 yr lifetime): $100s to $1000s ($?/mo)
• Monthly maintenance (1 hour):  ($?/mo)
• Domain name registration (annual): $12 or $1/mo
• Content promotion (? hr/wk):  ($?/mo)
• Ad campaigns (e.g., $?/yr):  ($?/mo)
• Semi-annual review and update (3 hr, or $90): $15/mo

The calculation depends on the hourly cost, whether in-house staff can perform these functions, and which tasks are necessary for the circumstance.

Estimates of Added Revenue are based on

• Value of a new customer (sales per month x income per sale)
• Value of a returning customer (increased sales per month x income per sale)

The estimate of the added monthly revenue can then compared with monthly marketing expenditures.

ROI Strategies

• Incremental implementation – see the Internet Marketing Flowchart (PDF)
• Judicious in-sourcing, including allocation of tasks to staff members as appropriate
• In-kind trades
• DIY – do it yourself works for many tasks!

Let us help you develop a ROI plan for your internet marketing needs!

Some Helpful Posts on External Sites

• How to Measure Internet Marketing ROI: The Four Basic Questions
• How to Calculate your Ad Budget – this is a more complicated approach, published in Entrepreneur

Image credit: ROI, by Simon Cunningham, on Flickr, courtesy of LendingMemo.com