What Is ROI in Marketing?

Updated on May 19, 2020
heidithorne profile image

Heidi Thorne is an author and business speaker with over 25 years of experience in sales, marketing, advertising, and public relations.


Marketing ROI Definition

What is ROI (return on investment) in marketing? It is very similar to the ROI of any other investment opportunity, except that it compares sales achieved to the cost of achieving those sales from marketing and advertising activities.

In marketing, the investment portion of the equation could include any or all of the following activities:

  • Broadcast advertising
  • Magazine or newspaper advertising
  • Internet advertising
  • Email marketing
  • Public relations
  • Social media
  • Brochures
  • Promotions (discounts, special financing, etc.)
  • Logos and branding development
  • Any other marketing or advertising activity done to produce sales.

Note that some of the items are noted as "advertising." Advertising is typically a function of marketing and is often included in total marketing costs. However, some companies may separate "advertising" from other "marketing" costs to track specific campaigns or efforts.

How to Calculate Marketing ROI

Simple Example: Company spent $5,000 on marketing and advertising for the year. They achieved sales of $10,000.

Calculating marketing ROI is very similar to that of other investment opportunities:

(Sales - Cost of Marketing) ÷ Cost of Marketing = Marketing ROI (Multiply X 100 to get percentage)

In our example...

($10,000 Sales - $5,000 Cost of Marketing) ÷ $5,000 Cost of Marketing = $5,000 ÷ $5,000 = 1.00 or 100%

To check calculation...

Cost of Marketing + (Marketing ROI % X Cost of Marketing) = Sales

For our example...

$5,000 Cost of Marketing + (100% Marketing ROI X $5,000 Cost of Marketing) = $5,000 + $5,000 = $10,000 Sales

In this example, the company doubled their investment!

A Good Read on Measuring Advertising

How a Business Can Have a Great Marketing ROI and Still Lose Money

Doubling any investment sounds really good, right? But that may or may not be a good result for marketing depending on the company's overhead expenses, cost of goods sold (COGS) and desired profit margins. Why?

Say that the simple example company in this article has overhead expenses of $8,000 (which includes the $5,000 for marketing) and COGS of $2,000. Plugging those figures into the formula for calculating profit margin:

$10,000 Sales - $8,000 Overhead - $2,000 COGS = $0 Profit

Ouch! Even though this company can achieve a return that doubles their marketing investment, they are just breaking even.

Marketing ROI cannot be evaluated in isolation of other business expenses and goals. However, knowing what kind of return can be expected from various opportunities can help a business forecast how much money may be needed to generate the level of sales desired, as well as which marketing efforts can achieve desired results.

So what can the example company do to improve their profit situation?

  • Reduce overhead expenses.
  • Reduce COGS.
  • Reevaluate their marketing and advertising choices to select those that may have a lower cost and/or higher marketing ROI.
  • A combination of all these efforts.


Marketing ROI Challenges

Next to sales forecasting, one of the most difficult functions for small business owners and marketers is measuring the ROI from marketing. Why?

  • Many Factors, Many Methods, Many Results. The marketing ROI calculation can vary, depending on what costs of the sales, advertising and marketing functions are included. Some companies include the cost of sales, i.e. salespersons' commissions, client entertainment, etc. Others may restrict the calculation to include strictly advertising or marketing costs. Still others may wish to only home in on results from specific advertising campaigns.
  • Meaningless Metrics. It's tempting to rely on irrelevant metrics—such as number of Likes on Facebook, number of Twitter followers, etc.—since those numbers may be more encouraging and easier to obtain. However, they may have only an indirect or zero impact on the sales process.
  • Marketing Results are Not Guaranteed. Because of the influence of multiple market and economic factors, simply investing in marketing and advertising is no guarantee that sales will result. As well, what may have worked well last year (or even last month!) may not continue to produce results. This makes measuring marketing ROI a continuous necessity so that adjustments can be made when an activity is no longer producing. .
  • Marketing Takes Time. Even more challenging is that marketing and advertising done in one fiscal year may not produce results until the next. So it may be difficult to tie the current year's sales results with the current year's marketing. This can often lead to knee jerk reactions (i.e. pulling ads after a short time) which ultimately hurt sales in the long run.
  • Response versus Results. Technically, a response to advertising (i.e. phone inquiry, clickthrough to a website, etc.) is a marketing result. But when measuring marketing ROI, only actual sales results produce the true return on investment. However, both response and results need to be monitored. Knowing how many responses actually convert into sales is a good measure of how effective a business' sales process is. Click here to learn more about PPC (Pay Per Click) ad campaigns and Internet advertising.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2014 Heidi Thorne


Submit a Comment
  • heidithorne profile imageAUTHOR

    Heidi Thorne 

    5 years ago from Chicago Area

    Hi suzettenaples! You're not alone. Many small businesses--and writers, too--have difficulty with this. It's even tough for those in marketing. Glad you found the explanation helpful. Have a beautiful week!

  • suzettenaples profile image

    Suzette Walker 

    5 years ago from Taos, NM

    Great explanation of something I am not that familiar with, but probably should be. Thanks for explaining this to us as this can help us with our online writing.

  • heidithorne profile imageAUTHOR

    Heidi Thorne 

    5 years ago from Chicago Area

    Hi FlourishAnyway! And Hummingbird, too. :) Thanks so much for reading and support. Have a terrific day!

  • FlourishAnyway profile image


    5 years ago from USA

    With all that is happening with the Panda update and the uproar that it has caused, some of these points are especially beneficial. Good hub, as always!

  • heidithorne profile imageAUTHOR

    Heidi Thorne 

    5 years ago from Chicago Area

    Hi AliciaC! Thanks for the kind words and glad you find the info helpful. Have a beautiful week!

  • AliciaC profile image

    Linda Crampton 

    5 years ago from British Columbia, Canada

    This is a useful hub, as always, Heidi. Your hubs are a great source of information for freelance writers.

  • heidithorne profile imageAUTHOR

    Heidi Thorne 

    5 years ago from Chicago Area

    Hi Iris! Glad you found this article (and others) helpful. Appreciate your kind comments. Have a beautiful rest of the weekend!

  • Iris Draak profile image

    Cristen Iris 

    5 years ago from Boise, Idaho

    This article is exceptional. It (and your other articles) is/are just bite-sized enough for my neophyte freelancing brain to comprehend, but they stretch me and give me things to watch for later on. This kind of information is exactly why I follow you. I couldn't agree with Bill more. Voted up!

  • heidithorne profile imageAUTHOR

    Heidi Thorne 

    5 years ago from Chicago Area

    You're so right, billybuc! And it's so easy to get sidetracked by numbers that don't mean anything or to misinterpret results. Appreciate your support, as always! Have a beautiful weekend (it's awesome fall weather here in Chi-town)!

  • billybuc profile image

    Bill Holland 

    5 years ago from Olympia, WA

    Freelance writers would do well to read this....failure in most businesses is due to lack of information and proper handling of that information. This is invaluable info.

    Have a great Sunday my friend.


This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, toughnickel.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://maven.io/company/pages/privacy

Show Details
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)