Return on investment, or ROI for short, is a key figure in marketing that compares the capital employed to the profit generated. One speaks here, among other things, of return on capital, return on investment and return on investment. ROI means return on investment. With the help of the ROI, it can be examined how much an investment has paid off, thus the profitability of a company can be calculated.
The ROI is classically calculated by multiplying the return on sales and capital turnover. Return on sales is profit divided by sales, and capital turnover is calculated by dividing sales by invested capital.
While ROI is often equated with the return on assets, it goes beyond that by measuring the returns on individual investments in addition to the return on assets of the entire organization.
The term return on investment comes from economics. Concerning online marketing, the ROI value is a ratio between the advertising sum used and the profit achieved through advertising on the Internet. For companies, the ROI value, in contrast to the click rate and page views, is an important means of determining the actual economic success of advertising campaigns on the Internet.
The ROI value is calculated as follows: Suppose a company places banner ads for 2000 EUR. She achieved sales of EUR 2,500. The profit is then 500 EUR. In this case, the ROI value is 0.25%. In a nutshell: (sales – costs) / costs = ROI.
The ROI can also be used to compare several advertising measures with one another in terms of their profitability.
Significance for online marketing and search engine optimization
With the ROI value, marketers and companies have a key figure that makes the effectiveness of various marketing measures measurable in financial terms. With search engine optimization, an exact determination of the ROI value is only possible to a limited extent, since not every sale of a product can be allocated to the long-term costs for SEO. Because the ROI value does not include the time factor in the calculation. At best, a determination is possible if the click paths from the organic search results, i.e. the SERPs, up to the product page of the shop or a purchase made, to then in the next step put the costs for SEO within a certain time in relation to the profit generated in this period.
In this way, the work of search engine optimizers becomes financially measurable. However, since many SEO measures do not take effect immediately, it becomes difficult to allocate sales to individual optimizations. However, the ROI is important for measuring the success of marketing campaigns or complete packages of marketing measures. Since a fixed sum was usually estimated or spent here, the customer journey can be used to understand how a conversion came about. In this case, it is important for both advertisers and customers to define exactly in advance what the conversion consists of (e.g. a purchase or a newsletter subscription) and, on the other hand, to determine which channels are included in the calculation.
When used consistently, the ROI can also be used as a KPI for evaluating marketing measures and as a target. For marketers and customers, this key figure then offers a solid basis for budget negotiations or bonus payments. However, the ROAS is usually used to determine only the financial resources used for advertising placements in relation to the sales generated.