When calculating the ROI, there are three types of results that can be obtained:
ROI is less than 0%. It can be argued that the investment in the project has not paid off, the company is incurring losses. To solve the problem, it is necessary to increase profits and reduce expenses.
ROI is 0%. The income received from the investment equaled the expenses. The company received zero profit. Therefore, the project did not bring in resources that could be used to develop and scale the business.
ROI is greater than 0%. The income from the project exceeded the costs. The investments were profitable, sales increased, the company received money for further development.
Let's look at a specific cash app database example. Let's say an online store that sells auto parts launched an advertising campaign in myTarget. The plan was to attract target audiences from two social networks - VKontakte and Odnoklassniki. A month after the launch of the ad, the company was able to achieve the following results:
Gross costs – 30,000 rubles.
Income – 65,000 rubles.
Thus, the company spent 30,000 rubles on advertising. At the same time, the store received several new customers who purchased spare parts for a total of 65,000 rubles. The return on investment coefficient will be calculated as follows:
ROI = (65,000 – 30,000) / 30,000 * 100% = 117%.
It turns out that the ROI is 117%. Thus, the advertising campaign paid off completely and even brought profit. Each ruble spent brought the organization 1.17 rubles of profit.
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It is worth considering that the ROI is affected by some other indicators. They contribute to changes in the size of the organization's income or expenses, which in turn can increase or decrease profitability.
LTV
LTV (Lifetime Value) – the indicator shows the gross income of the company received from the client for the entire period of cooperation with him. LTV is sometimes called the lifetime value of the consumer.
LTV (Lifetime Value)
Let's look at a simplified formula for calculating LTV:
LTV = Lifetime Revenue from a Customer – Costs of Acquiring and Retaining a Customer
There is another version of the formula:
LTV = Customer lifetime revenue – CAC
The longer a person cooperates with the organization, the more money he brings. It is worth noting that the costs of attracting new customers will be greater than the costs of retaining regular customers, since the latter have higher loyalty to the brand. This factor has a negative impact on the profitability of the business.
Let's assume that on average a client is served by the company for two years. At the same time, he makes one purchase for 2,500 rubles once every three months. Thus, over two years the client makes eight purchases. The total amount of his orders is calculated as follows:
Income = 2,500 * 8 = 20,000 rubles.
The initial customer acquisition cost (ICAC) is 3,000 rubles. If you take into account other expenses, the total costs of attracting and retaining customers will reach 6,000 rubles.
Client LTV: 20,000 – 6,000 = 14,000 rubles.
CAC