How to calculate ROI or return-on-investment.
- Erjola Marku
- Jan 26
- 2 min read
The return on investment (ROI) you can expect from investing 5% of your revenue in ads will vary widely depending on a number of factors, including the ad platform, industry, target audience, and how effectively the ads are managed and optimized.
Formula for ROI
The general formula for ROI in advertising is:
ROI=(Revenue from Ads−Ad SpendAd Spend)×100ROI=(Ad SpendRevenue from Ads−Ad Spend)×100
So, if you invest 5% of your revenue in ads and want to calculate the potential ROI, you'd need to compare the revenue generated from those ads to the cost of your ads.
Estimating ROI Based on Industry and Ad Effectiveness
Here’s how ROI might play out depending on the ad platform, industry, and how well your campaigns perform.
Factors That Influence ROI
Your actual ROI will depend on:
Ad Targeting: Highly targeted ads are more likely to generate higher ROI.
Ad Quality: Creative, copy, and offers that resonate with your audience tend to perform better.
Sales Funnel: The conversion rate (how well your landing pages, product pages, or checkout processes work) will directly impact ROI.
Seasonality: Some periods (e.g., holidays, sales events) see a higher return on ad spend, while others may be slower.
Competition: More competitive industries (e.g., law, finance, insurance) may have higher cost-per-click (CPC) and lower ROI.
Conversion Rate: If your website or landing pages convert visitors into customers effectively, you’ll see better returns.
Real-World ROI Expectations:
Here’s a range of real-world scenarios for how your $500 ad budget could translate into ROI, based on industry and effectiveness:
Industry | Ad Spend | Expected Revenue | Estimated ROI |
E-commerce | $500 | $1,000 to $2,000 | 100% to 300% |
Local Services | $500 | $1,000 to $1,500 | 100% to 200% |
B2B | $500 | $1,500 to $2,500 | 200% to 400% |
SaaS | $500 | $2,000 to $5,000 | 300% to 900% |
Factors to Maximize ROI
To increase your ROI, consider the following:
Test and Optimize: Start with a smaller budget and test different ad creatives, targeting options, and platforms. Optimize based on which ads bring in the best results.
Use Retargeting: Show ads to people who’ve already interacted with your brand or visited your website. This often leads to a higher ROI since they are already familiar with your business.
Leverage Lookalike Audiences: On platforms like Facebook and Google, you can target people who resemble your best customers.
Landing Page Optimization: Ensure your landing pages or product pages are optimized for conversions (clear CTAs, fast load times, mobile-friendly).
If you invest 5% of your revenue in ads, you can expect an ROI that ranges from 100% to 300% on average in most industries, though some industries (like SaaS or B2B) could see even higher returns. The key to success is testing, optimizing, and continually improving your ads to make your investment more effective.
Would you like help with setting up a campaign or calculating potential outcomes for your specific business?
Want help with your advertising?
Commentaires