Result
- Gains or losses:
- Percentage of profits or losses: %
- ROI (based on the years invested): %
- Years invested:
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ROI (Return on Investment) is one of the most widely used measurement indicators in the finance world.
Today we are going to explain in detail what it is, how to calculate it with our online ROI calculator, the formula to calculate it by hand, and how to automate the process with Excel.
Understanding the importance of synthesizing times in your financial operations and especially in calculating ROI is the main reason for developing this article and explaining the step by step in a simple way.
It is a financial operation that serves to identify the return on an investment, it is a ratio that is calculated by subtracting the profit obtained or expected on an investment from its cost; then dividing this result by the same cost.
If you work in marketing, it is most common to focus your actions on profitability, since all clients want their income statement to be positive and that any action they take is profitable. And in that scenario, ROI is key.
Today you will learn how to use it step by step, to tailor it to your business in a specific and simple way; and also with the ease that our calculator gives you by automating the whole process.
Are you ready to optimize your business profits?
It seems like an easy operation, but calculating the real profitability is not simple at all and requires your attention and care to be truly effective. After all, calculating its value is of vital importance for making investment decisions in a company.
The so-called return on investment is expressed as follows:
ROI = [(Profit – Total Investment) / (Total Investment)] * 100
Let's take an example: An investment of €2,000 in fast food sales has allowed you to obtain revenues of €5,000. The ROI calculation would then be (5,000 – 2,000) / 2,000 = 1.5 (so you would get a 150% return on your investment in the fast-food business).
This value is ideal for calculating the effectiveness of a campaign. The actual ROI of the campaign must also be calculated considering the operational cost necessary to obtain those revenues. That is, if calculating percentage-wise, the cost to distribute the orders has been $400, the ROI in this case would be (5,000 – 400 – 2,000) / 2,000 = 1.3 (the return on this investment is 130%).
Without a doubt, an optimal result, don't you think?
Well, evidently it is much more complicated since you can play with thousands of variables, therefore, it is part of your task to know how much you invested because surely you have been able to determine the benefit obtained from the investment, right?
If you are a webmaster or you work in the world of online marketing, we are going to explain how to calculate the ROI taking into account the specificities of your particular niche, so you can optimize your online campaigns and choose those that offer you the highest return on investment.
Imagine you launch a Facebook Ads campaign for the aforementioned fast food sale, you hire ten different ads that are shown to 10 different people's profiles.
Once you have launched the campaign, it's time to obtain some data that facilitate the calculation of the money recovery, the most immediate data we have from the beginning is the CPC (cost per click) of the Facebook Ads.
If you spend €1 to get 1,000 impressions of one of the different ads whose CTR is 2%, it means that each potential customer generated by this ad costs you €0.05.
Obviously, not everyone who clicks on your Facebook Ads automatically becomes a customer, but we can approximately calculate the percentage of visitors to our website who buy, usually between 2% and 3%.
Imagine it's 2.5%, a midpoint.
If the average value of the products you sell on your website, this is total profits / total purchases, is for example €3.5, we have all the variables under control.
With this data, we can now calculate the Return on Investment of this Facebook Ads campaign without problems:
For every €10 invested in ads, 10,000 impressions will be produced that will bring 200 visitors to your website (2% of the impressions) of these 200 visitors 5 (the 2.5%), will buy products at an average value of €3.5 each, that is, they will leave a total of €17.5.
Now you just have to calculate the percentage of profits from this campaign to check its profitability:
For every €10 invested, €17.5 of return is generated:
5 - 10 = 7.5
5/10= 0.75 = 75%
Congratulations your campaign has been a success! you have generated a return of 75%, this means that for every euro invested you will earn €1.75 gross or €0.75 net.
Once you are able to calculate the cost of the investment and the return that any campaign has had, just enter the data into our ROI simulator and it will throw all the figures you need.
It is normally used by entrepreneurs or majority shareholders of a company, rather than by potential investors or traders.
This is mainly because expert investors trust ROE much more because it gives them a larger sampling on the profitability of the investment. However, when different actions are developed within a marketing campaign, ROI is responsible for indicating which of these actions offers the most profitability.
Therefore, thanks to this, you will be able to make better decisions and adjust the initial budget in a campaign.
The results it provides are measured in positives (to identify that the strategy is profitable) or in negatives (in case the strategy is not profitable, and not lose so much money).
Lastly, ROI is especially used in online marketing; we are aware of this and have programmed the free calculator that a good marketer like you needs, haven't you tried it yet?
So far you have learned what it is and why you should know it, what uses and utilities you can give it, and how you can calculate it with our tool.
Now we are going to explain how you can automate this process by yourself using Excel so you can share it with your partners or clients.
To create your own ROI calculator in Excel you must follow the following steps:
First create a new spreadsheet in Microsoft Excel
Title the first cell of the column as “Name of the investment”, then in column B put “Base Cost”, in C “Current Value” and in D place “ROI”.
Copy this formula and paste it into cell D2 = (C2-B2) / B2 * 100 this operation will allow you to calculate the return on an investment, insofar as it expresses: current value of the investment (how much it has generated) - base cost (the sum you initially invested) divided by the base cost and multiplied by 100, to give you the result as a percentage.
Now you just have to enter all the data in columns A, B, and C and you will see how automatically in column D the ROI you are looking for is generated.
And that's all about its calculation, now that you know how to define the concept, what it's for, and how to calculate it, you can start putting it into practice to optimize your campaigns and maximize profits.
We hope you enjoyed our content, and that it was of maximum utility to learn how to calculate the ROI by yourself. If you have come this far with a good taste in your mouth, do not forget to share this post on your social networks, that way your contacts can also get to know this community of free calculators and simulators.
Finally, we would be very grateful if you could communicate to us through the contact page, any potential errors you might find both in the mortgage calculator and in the text, so we can resolve them as soon as possible.