What is ROI?

ROI is Return on Investment and is ultimately what you need to concentrate on in your business. It shows what you are getting back for all the work, not to mention money you are putting in.

Think of it like this. If you stick your money in a bank, your ROI is .05% / annum at current rates (If you're lucky). So if you stick your hard earned money in the bank, they'll give you 5c a year on every $100 you let them use. Banking rocks, because they'll then leverage that into $1000 at 8% + fees. However I digress.

The basic calculation goes a little like so:

ROI = [(Payback - Investment)/Investment)]*100

If you invest $100 in your business and get back $150 in sales:

ROI = [(150 - 100)/ 100] * 100 = 50%

Not bad for a days work eh? You end the day much better than you start and if you keep that up you have a much better chance of retiring to Maui that the 5c the bank is going to give you.

Ok lets turn it around. Say you still spent your $100 on your business on staffing, advertising, products etc. but only made $50 back, what does that look like?

ROI = [(50 - 100/ 100] * 100 = -50% ugh, not nearly so good but maybe, just maybe better than a weekend in Vegas.

In the Affiliate Marketing game your ROI% looks more like so:

ROI % = [(commission - cost) / cost] * 100

Where the commission in minus the advertising costs (Usually Google Adwords) are the driving factors.

It's important that you keep your data handy so that you can track your ROI, preferably on a per campaign or even adgroup level. It keeps things in track and lets you know when a runaway campaign is sucking away your hard earned profits.

Plan your work and work the plan.

Cheers,

Shane

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