Return On Investment

Marketing Glossary

Market Ruler, LLC

Return On Investment

Acronym: ROI

In online marketing, Return On Investment refers to the concept that online advertising is an investment from which a marketing professional expects to, at some point, see a return; usually in the form of increased revenues, or additional Orders.

Example

A marketing professional is working for a site which sells specialty dog food.

Using Google Adwords and Yahoo! Search Marketing to set up campaigns for keywords related to dog food, our marketer bids:

Keyword Amount
dog food $1.50
dog chow $1.75
dog food delivery $1.99

Within a single day, they receive 100 clicks on each keyword, at a total cost of:

(1.50 + 1.75 + 1.99) x 100 = $524.00

For their 300 clicks, they receive 15 orders for a total of $900.00 in revenue. If their profit margin is 75%, then their total revenues are

$900.00 x 75% = $675.00

At $524.00 in marketing dollars and $675 in net revenues, their return on investment is

$675.00 - $524.00 = $151.00

Which, as a percentage of spend, is:

$151.00 ÷ $524.00 = 29%

Where Conversion Tracking solutions come into play is in determining which marketing dollars are wasted.

Conversion Tracking

With Conversion Tracking, we are able to determine the following additional information:

Keyword Amount Clicks Total Cost Orders Order Totals Net Profit ROI
dog food $1.50 100 $150.00 8 $480 $360 $210
dog chow $1.75 100 $175.00 3 $180 $135 -$40
dog food delivery $1.99 $199.00 4 $240 $180 -$19

The only term which offers a positive Return on Investment is dog food. The other terms cost too much in our scenario and are not worth the marketing dollars.

The options for remedying this are:

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