ROI« Back to Glossary Index
ROI stands for Return on Investment. In the online business world we generally refer to ROI when using paid advertising.
Return on Investment is the amount of money earned for every dollar spent. Here is the formula for calculating it (don’t let the math scare you it’s easy!)
(Earnings – Ad Spend) / Ad Spend
It is easiest to understand with an example:
If you spent $50 on Facebook ads and from the people that clicked on the ad you earned $60 your Return on Investment would be .2 or 20%. Meaning your earning $0.20 for every dollar you spend (or are seeing a 20% return if you prefer to think about it that way).
$60 (Earnings) – $50 ( Ad spend) = $10
$10 / $50 (Ad Spend) = .2 or 20%
You should be monitoring the ROI of every advertising campaign you are running to drive traffic for your business. By determining which campaigns are giving you the largest ROI you can concentrate your ad spending into the best performing campaigns.