ROI

Wait, what? What is ROI?

ROI stands for Return on Investment. It’s a metric that lets you determine whether your investment is paying off. It answers a simple but crucial question: “How much profit did I make for every koruna I invested?”

Businesses and investors use ROI to verify whether their decisions are yielding the expected results or whether it would be better to focus on other activities.

So whether you’re investing in new technology, expanding your business, or developing a marketing strategy, ROI provides you with useful and accurate feedback.

How to Calculate ROI Step by Step?

When calculating ROI, you need to focus on the revenue and costs associated with the specific project (such as a marketing campaign) for which you want to determine the return on investment.

• Determine total revenue: How much money did the project generate? Use available data, such as sales, campaign revenue, or revenue from a specific product.

• Calculate total costs: Include all expenses—both direct (e.g., advertising, software) and indirect (e.g., salaries, logistics, operations).

• Use the formula: Subtract costs from revenue to get net profit. Divide the result by total costs and multiply by 100.

Formula for Calculating ROI

A simple calculation will give you very valuable information. Use this formula:

Example:
You invested 50,000 CZK in a marketing campaign that generated 80,000 CZK in revenue. The net profit is therefore 30,000 CZK (80,000 CZK – 50,000 CZK).

This means that your return on investment is 60%. Every koruna you invested earned you an additional 60 haléřů.

Tip: If you’re only interested in marketing expenses and their direct return, you can use ROMI (Return on Marketing Investment). This metric focuses purely on marketing costs and revenue and will help you better evaluate the effectiveness of specific campaigns.

What is ROI good for, and why should I care?

This metric isn’t just some random number. It doesn’t scream at you that you’re wasting your money, but it clearly shows you where your funds went and whether it was worth it. It helps you figure out what works and where you could better allocate your resources. This allows you to make better decisions about how to allocate your future resources.

In business, it has several key uses:

1. It measures the effectiveness of investments: It helps determine whether a specific investment paid off.
2. It compares options: It allows you to evaluate which projects, campaigns, or tools are most effective and helps you choose the most profitable one.
3. It optimizes costs: It helps identify and eliminate activities that do not generate sufficient profit, while highlighting where investments yield the greatest returns.

How Do ROI and ROAS Differ?

We’re often asked what the difference is between return on investment (ROI) and return on ad spend (ROAS). Although they may seem similar at first glance, each of these metrics measures something different and serves a different purpose.

ROI (Return on Investment) measures the overall return on investment—it takes into account all costs associated with a marketing campaign or other project. In contrast, ROAS (Return on Ad Spend) tracks only the return on funds spent specifically on advertising.

Let’s take a look at the formulas:

ROI is calculated based on net profit and includes all costs —not just advertising, but also marketers’ salaries, software, and other expenses. ROAS tracks only advertising expenses and the revenue generated from them. It’s faster to calculate but less detailed.

ROI, therefore, helps you determine whether investing in a particular project, PPC marketing campaign, or other business activity was worthwhile in terms of the overall result, while ROAS shows you how effective the advertising expenses themselves were.

Example:
A company invested 20,000 CZK in an advertising campaign that generated 50,000 CZK in revenue. Ad spending was therefore 20,000 Kč, but the total cost of the project—including, for example, employee salaries, software costs, and other expenses—was 35,000 Kč.

In our example, the ROAS is higher (250%) because it does not take related costs into account, while the ROI shows the actual return on investment (42.86%).

What is a good ROI?

There’s no single “good” ROI—the ideal ROI varies depending on the type of business, industry, and specific goals. Still, there are general indicators that can give you a clue:

• ROI lower than 0%: A clear indication that the investment was a loss. It’s time to assess what went wrong.
• ROI higher than 0%: Hurray, you’re in the black! The basic goal of any investment has been met.
• ROI between 20% and 50%: A typical return in industries such as marketing, retail, or services. It suggests that the investment was effective.
• ROI over 50%: That’s a real success. Congratulations! Your strategy was very successful, and the investment yielded exceptional results.

How to Increase ROI?

Increasing ROI isn’t a matter of chance—it’s about a well-thought-out strategy. As a marketing agency, we’re sharing tips focused primarily on marketing that can help you achieve better results:

• Find out what works:
  Focus on the activities that yield the best results. Feel free to invest more in campaigns that generate higher revenue. Conversely, eliminate ineffective spending.
• Automate processes:
  Save time and money with campaign management tools, CRM systems, or analytics platforms. Your increased efficiency will quickly translate into a higher ROI.
• Increase conversions:
  Improve ad content and visuals, optimize website speed, and focus on user-friendliness and personalization.
• Use A/B testing:
  Testing different strategies will help you understand what works best for your audience.
• Focus on customer loyalty:
  Retaining a customer is cheaper than acquiring a new one. Loyalty programs, discounts on future purchases, or top-notch customer service often really pay off in the long run.
• Work with experts:
  A marketing agency can help you create a well-thought-out strategy that maximizes your return on investment.

The Limits of ROI—What Should You Expect?

ROI is a great tool for measuring return on investment, but like other metrics, it has its limitations. It’s important to understand that it’s a simplified view of performance that can’t capture all aspects of your business.

• It does not account for time:
  ROI shows the return, but it doesn’t indicate how long it takes to achieve it. For example, in marketing, a quick campaign can be profitable, while a content strategy yields long-term results.
• It does not include all factors:
  ROI does not take into account other benefits, such as improved brand image, customer satisfaction, or long-term growth, which can often be crucial.
• Results may be skewed:
  If you don’t include all costs—such as those for management or development—ROI results may not reflect the actual situation. Accuracy always depends on the quality and completeness of the data.