Return on Investment (ROI)

Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. It is calculated by dividing the net profit generated from the investment by the initial cost of that investment, often expressed as a percentage. A higher ROI indicates a more favorable investment outcome.

Use Case

A digital agency launches a social media marketing campaign for a client to increase brand awareness.

1. Initial Investment: The client allocates €10,000 to the campaign, covering creative development, ad spend, and management fees.
2. Net Profit Calculation: After the campaign runs, the agency measures the outcomes:
3. Increased website traffic of 20,000 visitors.
4. Resulting in 500 sales, with an average sale value of €50, generating total revenue of €25,000.
5. Subtracting the original investment of €10,000 results in a net profit of €15,000.
6. Analysis and Decision-Making: With a 150% ROI, the agency demonstrates to the client that their investment was effective. This data can guide future marketing strategies, allocation of budgets, and the assessment of other digital channels. Positive ROI indicates justified spending, encouraging the client to continue investing in similar campaigns.

This detailed use case illustrates how tracking ROI helps in making informed business decisions and optimizing marketing efforts for enhanced profitability.