What is Good Marketing ROI (Return on Investment)?

 

          ROI -- or Return on Investment -- can be used to measure how much of your Marketing investment was returned in the form of gross profit (generated from that Marketing effort). The simple ROI formula is: 

          (Gross Profit) / (Marketing costs)

          where

          (Gross Profit) = (Gross Revenue) - (all direct costs of delivering those orders)

 

          For example . . .

          If your Marketing effort generated $20,000 in gross profit (revenue - product costs), and you spent $10,000 on the effort, ROI would be: $20,000/$10,000 = 200%

 

          In this example, you returned 100% of your Marketing investment, plus another $10,000 (or you returned double your Marketing investment).

 

          Is that good? It depends on your company's particular situation. Is $10,000 enough to cover overhead until your next Marketing effort? If not, a 200% ROI program (alone) will not be enough to keep your company in business.

 

          Consider also the Lifetime Value (LTV) of the customers you bring in from your 200% ROI Marketing program. Can they be expected to order repeatedly throughout the year? Can you expect a significant portion to continue ordering from you for several years? 

 

          If these customers have a significant LTV, then your company may be happy bringing them in at 200% ROI. (This assumes, of course, that you have other programs that have a higher ROI, or you have other resources to cover overhead in the meantime.)

 

          So there's not really any particular ROI that is "good" versus "poor". 

• Returning at least 100% of your marketing investment is always promising, but not always required for a successful program. Many times, it makes economic sense to bring in customers at an initial loss, if you know they have a significant LTV. 
• If the program is your only revenue-generator, a "good" ROI for you will depend on your particular overhead. 

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