Guide
ROI Marketing
Definition, calculation, examples
Marketing ROI is a powerful tool that reveals the financial impact of a brand’s marketing activities. It provides clear insights into which strategies are generating the most value, allowing businesses to optimize their marketing investments. Businesses can leverage this metric to make informed decisions to enhance their brand visibility and drive growth.
Start using Amazon Ads to display your products and create campaigns.
If you have limited experience, contact us to request services managed by Amazon Ads. Budget minimums apply.
Create cost-per-click ads to help customers find your products on Amazon.
Measure your advertising campaigns to better understand your audience and improve performance.
Jump to:
Additional Resources:
What is ROI in marketing?
Marketing ROI is a metric that shows how much money a brand makes from their marketing activities compared to how much they spent on it. By calculating marketing ROI, brands can understand what marketing efforts contribute to the bottom line. Additionally, brands can use these insights to make data-driven decisions about marketing budget and advertising strategies to help achieve successful results for the brand.
Why is ROI in marketing important?
Marketing ROI is important because it indicates whether a brand’s marketing efforts are successful and valuable. These insights help brands determine their budget, value, and performance in order to optimize their marketing investment and guide efficiency.
Four benefits of calculating marketing ROI
1. It drives budget allocation
By understanding which campaigns generate the best returns, brands can allocate their marketing budgets more effectively. This data-driven approach ensures that money is invested in high-performing initiatives, maximizing the impact of every marketing dollar.
2. It demonstrates value and profitability
ROI calculations prove that marketing efforts bring in revenue, helping justify marketing spend to executives, stakeholders, and decision-makers, allowing marketing teams to secure future budgets and resources.
3. It sets performance standards
Measuring ROI allows brands to set performance standards for various campaigns and channels, such as landing pages or email marketing. These standards serve as reference points for optimizing existing and future efforts, allowing teams to set realistic goals, quickly gauge success, and identify trends over time.
4. It details market performance
Marketing ROI provides a clear picture of how a brand's marketing efforts and strategies are performing compared to industry standards. These insights help businesses identify areas where they're excelling or lagging, which informs strategic decisions and helps to maintain or gain advantage.
What is a good ROI in marketing?
A good ROI in marketing is dependent on various factors specific to each business and industry. In simple terms, a good ROI means you’re making more money than you spent on marketing efforts. However, you should first establish your own baseline ROI rather than focus on a universal benchmark. This allows you to set realistic goals for your campaign and track progress over time.
For example, JELLYSUB’s experience demonstrates how this approach can lead to good ROI. JELLYSUB initially struggled with optimizing their digital marketing efficacy due to inadequate keyword performance data. By implementing Amazon Ads solutions to accurately analyze their keyword performance for each ad placement, JELLYSUB was able to establish clear baselines and significantly improve their ROI. This case study shows how baseline insights can lead to a more effective marketing strategy. By continuously monitoring your ROI, you can identify which strategies are most effective for your business and make data-driven decisions to optimize your marketing spend and overall performance.
How do you calculate marketing ROI?
The basic formula for marketing ROI is:
ROI = (Revenue – Marketing cost) / Marketing cost
The result is typically expressed as a percentage. For a more accurate result, you can refine the formula by subtracting organic sales growth, considering gross or net profit, and including all relevant costs.
While financial metrics are crucial, also consider non-financial elements like brand awareness, website traffic, or social media engagement when evaluating the overall success of a marketing strategy as they can contribute to long-term business growth.
Marketing ROI metrics
Marketing ROI metrics provide detailed insights into campaign performance beyond the basic ROI formula. These metrics help improve campaigns, optimize resource use, and demonstrate marketing value. Let's explore key marketing ROI metrics that offer a comprehensive view of marketing performance
Total revenue
Total revenue is the gross amount earned from a business’s sale of goods and services, before expenses are deducted, over a specific period of time. This key financial metric shows how well the business is performing in the market and indicates overall financial health.
Gross profit
Gross profit is the amount of money a business retains from their sales after deducting the direct costs associated with selling their goods or services. This metric helps businesses understand how efficiently they can produce and sell their products and indicates core profitability. The formula for gross profit is:
Gross profit = Total revenue - Cost of goods sold
Net profit
Net profit is the amount of money a business retains after deducting all expenses, including costs of goods sold, operating expenses, interest, taxes, and other expenses, from their total revenue. This metric provides a comprehensive view of the business’s overall profitability and is often referred to as the bottom line. The formula for net profit is:
Net profit = Total revenue - Total expenses
Customer acquisition cost
Customer acquisition cost (CAC) is the total amount a business spends to acquire a new customer. This important metric helps businesses evaluate the efficiency of their marketing efforts and determine customer profitability. The formula for CAC is:
CAC = Total cost of sales and marketing / Number of new customers acquired
Return on ad spend
Return on ad spend (ROAS) is a metric that shows the effectiveness of an advertising campaign by comparing ad revenue to ad spend. This metric is a good indicator of what a brand should expect to earn from an ad campaign. The formula for ROAS is:
ROAS = Ad revenue / Ad spend
Advertising cost of sales
Advertising cost of sales (ACOS) is a metric that measures ad spend and ad revenue. This metric helps determine the efficiency and success of your brand’s ad campaigns. Keep in mind that a lower ACOS generally means you’re spending less on advertising relative to the sales generated, indicating efficient ad spending. The formula for ACOS is:
ACOS = (Ad spend / Ad revenue) x 100
Customer lifetime value
Customer lifetime value (CLV) is the total amount you earn from a customer over the course of their relationship with you. It takes into account the customer value, from their first transaction to repeat transactions, and the customer lifespan, the average length of their relationship with the business. This crucial metric can help to inform marketing strategies that foster long-lasting, profitable customer relationships. The formula for CLV is:
CLV = Customer value x Average customer lifespan
Challenges in measuring marketing ROI
Measuring marketing ROI is not always straightforward. Several hurdles challenge your ability to accurately assess how well your marketing efforts pay off. By understanding these challenges, you can develop more nuanced approaches to measuring ROI, leading to more informed decisions and better-optimized marketing strategies. Let's explore some of the main challenges of calculating marketing ROI.
Complex customer journeys
Customers often have multiple interactions with a brand before making a purchase. Before deciding to buy, they might see a social media ad, engage with an email marketing campaign, or interact with other digital marketing from the brand. This complex customer journey makes it tough to pinpoint which marketing effort deserves credit for the sale, creating challenges for accurate attribution.
Short-term and long-term imbalances
There’s a delicate balance between short-term success and long-term value. While it's tempting to focus on immediate results like click-through rates or likes, some campaigns aim for long-term goals like building brand loyalty or improving customer relationships. These benefits might not show up in your ROI calculations for months or even years, making it tricky to measure their true value in the short term.
Hidden costs
Calculating the true cost of your marketing efforts and overall marketing spend can be like trying to count all the fish in the sea. Beyond obvious expenses like ad spend, you need to factor in things like staff time and wages, production costs, and overhead. Missing any of these elements can throw off your ROI calculations and give you an incomplete picture of your marketing's effectiveness.
External factors
External factors like seasonal trends, economic conditions, or even the weather can significantly impact your results. For example, an ice cream shop might see sales increase during a heatwave regardless of their marketing efforts. To get an accurate ROI, you need to account for these external factors and establish a reliable baseline for comparison.
How to improve marketing ROI
Improving your marketing ROI is crucial for maximizing the effectiveness of your campaigns and ensuring your marketing budget is well-spent. Here are four steps to enhance your marketing strategies and boost your ROI:
- Set clear goals: Establish specific objectives and key results (OKRs) and define key performance indicators (KPIs) to track your progress. This clarity helps you focus your efforts and measure success accurately. Important OKRs might include improved customer satisfaction, while KPIs might include conversion rates, lead generation, and click-through rates.
- Know your costs: Accurately determine all costs associated with your marketing efforts, including creative development, personnel, and overhead. This comprehensive understanding is essential for calculating a true ROI and identifying areas where you can optimize spending.
- Leverage data analytics to maintain progress: Implement robust analytics tools to track and measure your marketing activities and performance across various channels. Use this data to gain insights into customer behavior, experiment with new strategies, and make real-time adjustments. This ongoing process of testing and refinement helps to continuously improve your marketing ROI.
- Focus on high-performing channels and content: Analyze which marketing channels are delivering the best results and allocate more resources to these areas. Create high-quality content that resonates with your target audience. Use A/B testing to refine your messaging and improve engagement rates. By optimizing your high-performing channels, you’re likely to see growth in key metrics like conversion rates, further enhancing your ROI.
Marketing ROI examples
Case Study
Discover how Zoom optimized their Amazon Ads strategy by partnering with DemandHelm and utilizing Amazon Marketing Stream and rapid retail analytics. By leveraging hourly performance and retail insights, Zoom implemented advanced dayparting and made data-driven decisions on ad spend allocation. As a result, Zoom improved their conversion rates, ROAS, and overall sales.
Case Study
Jackery partnered with SparkXGlobal to expand their reach on Amazon beyond their saturated primary audience segment. Using Amazon Marketing Cloud and shopping insights, they identified new, relevant audiences and created tailored advertising campaigns. As a result, Jackery achieved growth in their advertising performance, ultimately enhancing their ROI.
Case Study
Australian furniture brand Koala expanded their reach by advertising on Amazon, using various sponsored ad solutions to help boost brand recognition while maintaining strong ROI. Their strategic approach, especially during sales events, led to impressive results. Consequently, Koala achieved a 2x growth in sales from 2022 to 2023, with peak performance showing a 4x ROAS during key sales events.
Case Study
By leveraging various Amazon Ads solutions, including Sponsored Products, Sponsored Brands, Sponsored Display, and Amazon DSP, Graco significantly increased their brand visibility and sales. As a result, Graco exceeded category growth on Amazon.co.uk across multiple product lines, achieving a 6% ACOS and a 17x ROAS.
Case Study
To improve their global reach, Nestlé turned to GroupM, which helped by creating audiences within AMC and activating them through Amazon DSP campaigns. Amazon DSP is an omnichannel marketing solution that provides choice and flexibility to deliver relevant ad experiences that create meaningful connections. For example, Nestlé and GroupM created a remarketing audience for users who had clicked on the brand’s Sponsored Products ads but had not yet made a purchase.
Optimizing and measuring ROI with Amazon Ads
Sponsored ads solutions can help brands improve ROI by promoting brand awareness and connecting with new customers to increase sales.
Amazon DSP can help maximize ROI with our first- and third-party insights to help reach new customers and target audiences wherever they are spending their time across Amazon or across third-party apps, sites, and devices.
Amazon Marketing Cloud is a secure, cloud-based solution that allows advertisers to analyze data and build audiences using anonymized information from various sources, including Amazon Ads and their own data, enabling valuable insights. These insights can then be used to optimize marketing campaigns, improve advertising strategies, and develop custom attribution models, which can improve ROI.
Amazon Marketing Stream delivers real-time access to hourly metrics and campaign messages. With its push-based messaging system, you can improve campaign efficiency and optimize ad spend to maximize your ROI.
Already a registered advertiser? Sign in.