Hi everyone!

We decided that it was time to dot the I in the question of ROI. This is that measurement that any affiliate marketer has to calculate at least once in their life.

Our audience has different experiences: some have worked with this indicator many times already and know what it’s about, how to calculate ROI and take this coefficient into account, while others ignore it – everyone for their own reasons. There are also those who simply passed the point of even getting to know this ROI metric, as well as those who are a little scared by the variety of abbreviations, because we know there are also ROMI, ROE, and ROA.

So, what is ROI, how to calculate ROI, and what are all the other variations of this abbreviation?

ROI (return of investment) is a percentage showing how profitable or unprofitable a particular business campaign is.

Here’s its calculation formula: (Sales Growth – Advertising Cost) / Advertising Cost * 100

Roughly speaking, first you calculate the net profit, then divide it by the total amount of investments, and get the desired coefficient as a percentage.

What should you do with this number? How to understand if it’s good or bad for you? Or maybe it is average?

• ROI below 100% indicates that your business campaign is unprofitable;

• If ROI equals 100%, then in this case, income is equal to expenses, and you currently do not have resources for development;

• If ROI >100%, then the campaign was effective – not only did it fully pay for itself, but also brought finance for further growth.

This calculation can be automated using services such as Keitaro or AdsBridge. The return-on-investment ratio also increases due to a decrease in advertising costs or an increase in income from it – all this can also be monitored in the services mentioned above, as well as see which campaign you should leave alone or maximize, and which one to optimize.

ROMI: definition and how to calculate this ratio

ROMI (return on marketing investment) is a measure of how profitable marketing investments are. This ratio can relate to various areas such as social media ads, contextual advertising, blog metrics, etc.

By learning how to calculate ROMI, you will determine which promotional tools pay off, which ones are profitable, and which ones are unprofitable.

How to calculate ROMI?

The formula is exactly the same as above: (Sales Growth – Marketing Cost) / Marketing Cost * 100

The logic for the resulting figure is then the same as in the case of ROI:

• ROI below 100% – unprofitable advertising campaign;

• ROI equal to 100% – income equals expenses, there are no resources for advertising development;

• ROI over 100% – advertising is effective and brings finance for further growth.

The already mentioned Keitaro, AdsBridge, and similar services will also help you calculate ROMI automatically.

ROMI and ROI: what is the difference?

Objectively speaking, the difference here is only in their names and specialization, and so, both metrics are indicators of the payback of business enterprises.

ROMI is almost the same thing as ROI. The first indicator is distinguished by its focus on marketing. All other costs of a business campaign, except for marketing, are never included in ROMI.

ROI is the overall return on any investment, not only does it include advertising costs directly, it may cover employee salaries and production costs such as, for example, electricity and the Internet, rent, used software, licenses or certificates, logistics, etc. It all depends on the scale of each individual project.

We hope that this clears it up with the meaning of ROI and ROMI for you!

When ROI doesn’t work

The return-on-investment indicator cannot be called a universal measure of the payback of any type of business costs. So, it’s just wrong to apply it in some cases. Mostly,  these exceptions do not apply to affiliates, but who knows what changes in the market and verticals the world is preparing for us in 5 years? This way, we advise you to fill up on the theory or revise it if you already knew all of this. There are just 2 exceptions to the use of ROI:

1.    When the purchase of services or goods is carried out gradually, or after a long period of time special to your niche. This includes the purchase of a car or apartment, expensive devices or household appliances. Accordingly, ROI will vary depending on the study period. Choosing such expensive and important goods, a person can find your ad, choose your product in advance, but then make a purchase months later.

2.    There is a big difference in the amounts of transactions. For example, when selling a car, it is difficult to calculate the advertising investment ratio, since one sale of one expensive car will break all calculations.

ROA and the difference between ROA and ROI indicators

The difference between ROA and ROI, just like in the case of ROMI, is in the scope.

ROA (return on assets) is an indicator from the world of financial investments that indicates the level of profitability or unprofitability of assets. ROA evaluates the activities of the enterprise in the analysis of financial statements.

ROA calculation formula: (Net Income / Asset Value) * 100

ROE and the difference between ROI and ROE indicators

The difference between ROI and ROE is even more obvious, it’s difficult to confuse these two. ROI is a percentage that shows the return on investment in a business, whereas ROE (return of equity) is a value derived from the world of stocks and large investments, showing the potential cash return on shareholders’ investments. In essence, ROE will show how effectively a particular firm manages the money contributed by shareholders and investors.

Calculation formula: (Net Worth / Shareholders’ Equity) * 100

Conclusion

Only the first two among the whole set of business abbreviations – ROI, ROMI, ROA, and ROE – actually affect the lives of affiliates. These are the ones you really need to know how to use. ROA and ROE are two indicators from a slightly different area, most often not related to affiliate marketing affairs and certainly not to nutra, our favorite vertical.

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