How is Marketing ROI (Return on Investment) Calculated?
Marketing ROI (Return On Investment) is calculated as the ratio of incremental contribution to sales from a marketing channel divided by the spend in that marketing channel. This is the most common formula used to evaluate the return on investment of media dollars.
Incremental_sales = f(media_spend, raw_sales, other_parameters)
Once incremental sales is calculated for a tactic using one of the above techniques, the ROI for that tactic is calculated using the following formula.
ROI = (incremental_sales) / (media_spend)
ROI = (revenue – media_spend) / (media_spend)
Another commonly used marketing term is ROAS: Return On Ad Spend. The formula for ROAS: (revenue) / (media_spend)