ROI (Return on Investment)
ROI, or return on investment, measures how much money a marketing activity brings in compared to what it costs. The basic formula is (revenue from the activity minus cost) divided by cost. If you spend $500 on a campaign and it brings in $2,500 in new business, your ROI is 400 percent, or four dollars back for every dollar spent.
Why it matters for a small business
Small businesses do not have money to waste on marketing that does not pay off. ROI turns “I think the ads are working” into a number you can compare. It shows which channels deserve more budget and which ones to cut, and it keeps decisions grounded in results instead of opinions or sales pitches.
What to count as cost
- Ad spend and software subscriptions.
- Agency or freelancer fees.
- Your own time or your staff’s time, which many owners leave out.
- Discounts or offers given away in the campaign.
What makes ROI hard to measure
Customers rarely buy after one touch. Someone might see a Google ad, read your newsletter twice and then call after a friend recommends you. Use UTM parameters on links, ask new customers how they found you and track leads in a CRM so you can connect revenue back to the source.
A real-world example
A plumbing company spends $1,200 a month on a paid directory listing and $300 a month on email marketing. After three months of tracking where each booked job came from, they find the directory brought in $3,000 in jobs while email to past customers brought in $9,000. They cut the directory and put part of that budget into email and their Google Business Profile.
Look beyond one campaign
A customer who stays for five years is worth far more than the first job. When you can, measure ROI using customer lifetime value, not just the first sale.
Related terms: Conversion Rate, Campaign. Related reading: How can marketing help your small business grow? See our marketing services.
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