Before you spend money on marketing, it’s important to understand how the numbers work together. You can’t make a profit if you don’t know what constitutes real profit. Marketing ROI is determined by how much you spend on marketing minus your investment, divided by your investment. But profit is determined by earnings minus all costs.
Know the Formula: ROI = (Return – Investment) / Investment
In other words, return minus investment divided by investment. So, if you earned $10,000 and invested 2000 dollars, it would look like this:
10,000 – 2000 = 8000
8000 / 2000 = 4 which means your ROI is 400%
That is a huge amount of return on investment and that means the ad is working very well, which then means you can increase your budget.
Know Your Profit – However, there is one number to be cognizant of and that is your cost outside of advertising. For example, how much did 8000 dollars worth of product cost? If you spent 8000 dollars on your product, you didn’t make a profit. Your profit would be 8000 – Cost.
Set Your Initial Budget – The first thing you need to do is to set your budget. The budget needs to be based on a realistic amount of money that you can afford to lose. But it also needs to be based on some type of information such as:
– How much your product costs
– How much you make from each sale
– Whether costs increase with sales
Any information that you know that changes costs is important to know, so that you can set a realistic budget. If you do it right, you should come out way ahead.
Set Your ROI Goals – Study your competition and industry standards to find out what a reasonable ROI is. That way you can set a goal that is realistic. You don’t want to set too high of goals that you can’t meet, but you do want to set a realistic goal that makes sense.
To earn a good profit, you will need to engage in some form of marketing. Sometimes the costs aren’t direct. For example, content marketing is often perceived as free. But is it? You must spend time writing and promoting. You may even pay someone to do these things.
Those things need to be added to your investment costs to get a more accurate picture. However, it is better to figure out one thing at a time and not lump all actives together. For example, you might want to figure out your ROI for content marketing versus Facebook marketing. This can take a little more work, but it’s important to do so that you know where to invest your time, effort and money.
*This article is not intended to replace professional business advice and planning. Always contact professionals regarding any business advice, financials, planning, operations, and/or management.