ROI is also used as a
marketing
indicator. By calculating and analyzing ROI, you can visualize the cost effectiveness, marketing effectiveness, and issues of your business or project. To make the most of your ROI, learn more about ROI calculations and examples.
What is ROI?
Generally speaking ROI
ROI is an abbreviation for “Return on Investment” and is a percentage that shows how much profit there is against the cost invested. ROI is calculated by “profit ÷ investment amount x 100 (%)”, and the higher the number, the higher the cost effectiveness.
ROI in marketing measures
ROI in marketing represents the “profit rate” that indicates how much profit is generated from the “advertisement expenses” invested. In marketing, it is common to verify results not only with ROI but also with ROAS (Return on Advertising Spend). The calculation method is different from general ROI because the profit margin is calculated excluding selling expenses.
Visualizing marketing ROI in numbers helps make logical decisions regarding measures. In addition, budget simulations and budget allocations can be compiled into documents that can be shared within the company and effectively used as persuasive data.
How to calculate ROI
Profit ÷ Investment amount x 100 (%)
Keep in mind that profit is the amount obtained by subtracting “cost of goods sold” and “selling, general, and administrative expenses” from “sales.”
Also, be careful about the “range of investment amount” when calculating ROI. What you include in your investment amount is completely optional. Therefore, in order to accurately measure the effects of the entire project, it is necessary to calculate the “total investment amount.” On the other hand, when measuring the effectiveness of specific marketing, only the “costs required for marketing measures” are recorded.
ROI calculation example 1: ROI for business/project
△△ Company made an initial investment of 5 million yen to sell their products. Sold 2,000 products at 1,000 yen each, resulting in total sales of 2,000,000 yen. The purchase cost for this product is 300 yen per piece. In this case, the values required for the calculation formula are as follows.
| Amount invested in the business | 5 million yen |
| Sales | 2 million yen |
| product price | 1000 yen |
| product cost | 300 yen |
| Number of sales | 2000 pieces |
Based on the above, ROI is calculated as follows.
Profit = Sales 2 million yen – Product cost 600,000 yen = 1.4 million yen
ROI = Profit 1.4 million yen ÷ Investment amount 5 million yen × 100 = 28%
Subtracting the cost of 300,000 yen from sales of 2 million yen yields a profit of 1.4 million yen. Divide this by the investment amount of 5 million yen and multiply by 100, and the ROI will be 28%.
ROI calculation example 2: ROI for marketing measures (email advertising)
In order to sell a new shampoo through mail order, △△ Company decides to conduct marketing to customers through e-mail advertisements. The cost for marketing measures was 2 million yen. The product was sold at a cost of 300 yen per bottle and a list price of 1000 yen. As a result, 5,000 bottles of the new shampoo were sold, with sales of 5 million yen. Labor costs and product shipping cost 500,000 yen.
In this case, the values required for the calculation formula are as follows.
| Marketing measures cost | 2 million yen |
| SG&A expenses | 500,000 yen |
| Sales | 5 million yen |
| product price | 1000 yen |
| product cost | 300 yen |
| Number of sales | 5000 pieces |
Based on the above, ROI is calculated as follows.
Profit = Sales 5 million yen – (Product cost 1.5 million yen + SG&A expenses 500,000 yen + Marketing expenses 2 million yen)
=1 million yen
ROI = Profit 1 million yen ÷ Marketing cost 2 million yen × 100 = 50%
To calculate profit, subtract three items from sales of 5 million yen: total costs of 1.5 million yen, selling, general and administrative expenses (personnel costs, shipping costs) of 500,000 yen, and marketing expenses of 2 million yen. If you divide this by the marketing campaign cost of 2 million yen and multiply it by 100, the ROI will be 50% and the profit margin will have increased by 50%.
ROI calculation example 3: ROI for marketing measures (SNS advertising)
△△dokoro, a long-established Japanese confectionery shop, is selling Japanese confectionery sets using e-commerce. This time, we used SNS advertising to promote the product with a 3-month contract of 900,000 yen. The LP used for advertising was commissioned from an outside company for 100,000 yen. The Japanese sweets set we offer is 2000 yen per box, and the original price is 500 yen. It will cost 2 million yen for the labor costs of the craftsmen, packaging, and shipping.
As a result of the promotion, we were able to sell 3,000 boxes, partly because it was a seasonal sale.
In this case, you can calculate the “cost effectiveness of SNS advertising” and the “cost effectiveness of LP.” The numbers required for calculation are as follows.
| Marketing measures cost ① (SNS advertising) | 900,000 yen |
| Marketing measures cost ② (LP) | 100,000 yen |
| SG&A expenses | 2 million yen |
| Sales | 6 million yen |
| product price | 2000 yen |
| product cost | 500 yen |
| Number of sales | 3000 pieces |
Based on the above, ROI is calculated as follows.
Profit = Sales 6 million yen – (Product cost 1.5 million yen + SG&A expenses 2 million yen + Marketing measures expenses ① 900,000 yen + Marketing measures expenses ② 100,000 yen) = 1.5 million yen
■ROI of SNS advertising = profit 1.5 million yen ÷ marketing measures cost ① 900,000 yen x 100 = 166.7%
■LP ROI = Profit 1.5 million yen ÷ Marketing measures cost ② 100,000 yen x 100 = 1500%
Divide 1.5 million yen in profit by 900,000 yen in SNS advertising cost to find the cost-effectiveness of SNS advertising, and divide by 100,000 yen in LP production cost to find the cost-effectiveness of LP. These numbers can also be used for comparison the next time you use a different medium for SNS advertising or create a new LP.
ROI calculation example 4: ROI for marketing measures (seminar held)
A certain tax accountant’s office decided to hold a seminar in order to obtain an advisory contract. SG&A expenses totaled 300,000 yen, including conference room rental of 100,000 yen, staff placement of 100,000 yen, and pamphlet preparation of 100,000 yen. The content of the seminar is almost the same as before, so there is almost no cost. The participation fee was 5,000 yen, and 50 people attended the event. The seminar ended successfully, and 15 of the 50 participants signed consulting contracts worth 30,000 yen per month.
In this case, the numbers required for calculation are as follows.
| Marketing measures cost | 300,000 yen |
| SG&A expenses | – (included above) |
| Sales | Advisor contract: 450,000 yen Participation fee: 250,000 yen |
| product price | 30,000 yen |
| product cost | – |
| Number of sales | 15 |
Profit = Sales 700,000 yen – Marketing cost 300,000 yen = 400,000 yen
ROI = profit 400,000 yen ÷ 300,000 yen × 100 = 133%
This number represents the effectiveness measurement of the seminar business as a whole. However, in reality, it is necessary to analyze not only this number but also a combination of multiple indicators, such as the cost effectiveness of attracting customers (ROAS) for 100,000 yen of pamphlet preparation and the purchase rate (CVR) for seminar participation.
regarding marketing measures
