November 21, 2022 Julia 12 minutes to read

Calculating ROI and ROMI

How do you understand that advertising campaigns bring profit? Measuring ROMI — Return on Marketing Investment — will do the job. It will show you the return on investment in advertising.

How do you measure ROI in marketing? What is the difference between the marketing ROI (or ROMI) and ROI for business?

Marketing ROI takes into account the cost of goods, logistics and payment processing, but does not consider, for instance, payroll and office maintenance costs. It’s because you need to assess advertising efficiency, but you want to do it every couple of weeks, without getting into accounting reports.

Hereinafter, we discuss the calculation of marketing ROI, and if your business is well-accounted for, you can just as well calculate the ROI for business.

Let’s start off by looking at common scenarios or common “don’ts”.

Mistakes When Measuring ROI:

  • We try to measure ROI, cohorts, LTV, Retention Rate — all at once, and better with a prediction for 5 years from now. With 100 orders per day and email base of up to 20,000, the enthusiasm wears off. And nobody has even started to actually calculate ROI.
  • We give a rough estimation of return on investment, divide profits by losses, and — provided the result is psychologically acceptable — leave it as it is. If not, we exclude the points which spend the most. Later on, when we stop getting calls/orders, we cool down and switch everything back on.
  • A popular option among start-up businesses is to buy a fancy tool, such as Mixpanel, Kissmetrics or something similar. They start to figure out how to deal with it, then realize that they need an analyst and blow it off. On the bright side, though, you can brag about using MixPanel at a party. But ROI is left uncalculated.

… and many other things that leave us without a real picture of how things with ROI are.

Calculating ROI at once is the same as losing weight for the summer in May.

Now, what should be done before (in fact, half a year before at the very least) beginning to calculate ROI:

Data Harvesting for ROI Calculation. The Expenditure Side.

We agree that all the traffic costs are handed in to and stored in Google Analytics.

What is a must here?

1. Call tracking. It is not necessary to enable dynamic call tracking, where every word is tracked. For the first time, 1 number per 1 source is enough.

When can you do without it? If 80% of the orders are from the cart.

2. Correct Google Analytics settings:

  1. There are filters for the office IP and remote employees;
  2. The way conversion goes is crystal clear;
  3. Google Analytics collects traffic correctly (referrals, cross-domain tracking, etc.).

3. All traffic costs (OWOX BI Pipeline) are entered into Google Analytics for at least 6 months in a row: linked Google Analytics and Google Ads accounts and Google Ads costs are automatically imported; SEO costs; Facebook; MailChimp; other sources (price aggregators, teaser networks, etc.).

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4. A SourceBuster script has been implemented in order to know the source of each order and regularly and securely save it in the database. Script and documentation. The author is Alex Fedoseev and we also had a hand in finalizing it.

Implementation scheme:

  1. Add the script to Google Tag Manager or in the website code;
  2. Create 5 columns in the database (source / medium / campaign / term / content);
  3. After each conversion action, store this data from the SourceBuster cookie for further analysis (which source led the registration or order, and how these people buy in the long term).

5. Google Ads uses a tracking template to understand which advertising campaign generated an order.

The tracking template is needed in order to pass parameters, which are stored in encrypted form in ?glcid (for example, campaign), to the database using the SourceBuster scripе).

We recommend using at least ‘campaign’.

Example: {lpurl}?campaign={notebooks-kiev}

More on the tracking template.

6. All non-Ads traffic sources are labeled under Google Analytics. And they are labeled in the same way.

7. It is possible to regularly receive data on orders for a certain period from the database. This does not require creating a ticket to a programmer who will complete it by the middle of next month.

8. Advertising campaigns should be grouped and labeled so that it is possible to adequately assess the ROI for each segment:

  • campaigns are divided into retargeting and attracting new users;
  • campaigns are divided into search and display;
  • all brand queries are placed separately, added to separate advertising campaigns, excluded as negative keywords in other campaigns;
  • phone order data is recorded in CRM and assigned to the desired traffic source;
  • template names are used everywhere for each advertising campaign: about its targeting, geo, languages, currencies, devices.

For large stores, the number of campaigns can easily reach up to 30 per 1 line of business (taking into account geo, devices, etc.).

Click on the image to view full size
Click on the image to view full size

Data Harvesting for ROI Calculation. The Revenue Side.

  • in the database, it is possible to clearly distinguish orders from employees (separate email or sign) and from wholesale customers;
  • there are clear order statuses and they are observed by the whole company: they are changed in time;
  • columns with data from SourceBuster are stored;
  • additionally configured is transmission of data on canceled orders and orders by phone to Google Analytics via the Measurement Protocol.

To do this, you need to save 3 more parameters for each order:

  1. Client ID— used to link an order to a specific traffic source, in short;
  2. User Agent — responsible for the correct binding to the browser and device;
  3. User IP address — responsible for geo-binding.

This data is then collected in a POST request and regularly sent to Google Analytics. More details in the guide.

When Data For ROI Analysis Is Collected.

We have revenues and costs records. We collect marketing costs in Google Analytics and revenues in a database. Now, we can count ROI.

3 Schemes For Calculating ROI:

1. The Bare-bones Agenda

Set up Measurement Protocol transmission in Google Analytics: completed orders, canceled orders, and phone orders. Create calculated metrics in Google Analytics 2: ROI and net profit.

Formula for calculating ROI

ROI: (revenue/cost) and as %.
If less than 100% — there are problems.

Calculate metrics for Google Analytics
Gross Margin for Ecommerce: {{Revenue}}-{{Refund}}
ROI after refund including costs: ( {{Revenue}} — {{Refund Amount}} ) / {{Cost}}
Thus, we check a quick ROI on traffic in Google Analytics.

2. The Optimum Plan

  1. Cost and traffic data is collected from Google Analytics. We use the Supermetrics.
    This paid add-on to Google Spreadsheets allows you to pull up to 1 million lines from Google Analytics. You can set many parameters, schedule data collection, connect Facebook, Mailchimp and many other services.
    This is relevant because Google Analytics has closed upload limits, and now only 10k is available. The system costs $50/month, there is a trial period for 30 days. The data from the database should be uploaded in excel format.
  2. We make pivot tables to compare data from two sources. The key is most often the transaction ID. There are many ways:
    – VLOOKUP function
    – power query. Learn more: Merging queries (Power Query)

This approach will allow you to regularly make reports on the effectiveness of your business:

  • sales dynamics;
  • composition of orders;
  • lagging behind the plan;
  • calculated ROI for advertising sources.

And lots of other data for analytics.

3. The Best-Case Scenario

The most vivid and interesting way is to roll up reports in Microsoft Power BI. This is a free product from Microsoft that allows you to:

  1. pull data from several sources (SQL database, Internet address, file on a computer, direct connection to a web service);
  2. combine and process this data into one report;
  3. visualize data so that decisions can be made instantly.
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An Example of a Power BI Report

The Key Thing About Calculating ROI Is Regularity

ROI will be calculated regularly only if it is in the KPI of those who calculate it:
They need to:

  • report regularly (initially once every 2 weeks);
  • send reports and comment on them;
  • on the basis of each report, briefly propose their work plan to improve performance;
  • metrics that are used in the report should be reviewed every few months: Are they needed? Are there decisions made on their basis? Is it possible to somehow influence these metrics?
  • ROI calculation doesn’t have to turn into a 2-hour meeting every week. It demotivates the team. Instead, each department should briefly comment on its part and formulate a work plan.

Need to set up correct ROI calculation?

We can be of service if you don’t want to overpay for secretaries, but rather communicate directly with specialists and experts in Internet marketing.

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