Understanding financial metrics such as ROI and Payback is a fundamental step in directing your business efforts and achieving good results with a lower level of investment. Through them, you can understand which strategies are working and what needs to be done to adjust the others.
Tracking good marketing metrics in your business is essential to investing resources more intelligently and achieving good returns while spending less money. In this sense, understanding the concepts of ROI and Payback is extremely valuable for even more effective campaign management.
Using these indicators, you can understand which actions are generating satisfactory returns and how long a given campaign takes to pay for itself.
This way, you can direct the business’s money towards more efficient strategies.
If you want to know more about how to analyze these sri lanka whatsapp data metrics, it's worth continuing reading and checking out this content. In it, you will find the following topics:
What is ROI?
What is Payback?
What is the difference between them?
How to calculate them?
Why track these metrics?
What is ROI?
The term ROI comes from the English Return On Investment or, as it is translated, Return on Investment. Through a simple mathematical formula, this indicator provides Marketing managers with important information: how much return each R$1 invested in certain actions gave.
Therefore, when calculating ROI, it becomes easier to understand whether a given marketing campaign is producing positive results or whether it ends up generating losses for the company.
This way, you can use this information to determine the next steps for your business in order to generate results with a lower level of investment.
What is Payback?
Now that you know what ROI is, how about understanding more about the concept of Payback? This metric is a little more complex than the previous one, but it can give you a better view in the medium or long term. Through it, you can understand how long a marketing action takes to pay for itself.
For example, imagine that you carried out a certain action through social media that spent a good part of the company's budget.
Through this metric, it is possible to measure the time it will take for this amount to return to the cash register.
This way, you can understand whether a given investment will pay off in 1 month, 1 year or more. Therefore, it is worth using this metric when evaluating whether a strategy is valid and should be implemented.
What is the difference between them?
Understanding the differences between ROI and Payback can help you use each concept at the right times.
This way, you can make better decisions in the company's Marketing and, consequently, improve results with fewer resources invested.
In this sense, it is possible to verify that the first term, ROI, can be used to understand whether it is worth investing in a certain action, while the second, Payback, is related to the time in which the capital that was invested in the strategy returns to the company's cash flow.
How to calculate them?
Now that you understand the concepts and differences, how about learning how to calculate each of these metrics? To help you, we present the formulas and an example of each calculation below. Check it out!
ROI Calculation
To calculate ROI, you need to have some data from your company's Digital Marketing campaigns, such as the revenue generated through them and the costs required to implement them. With this data collected, simply follow the formula below:
ROI = (revenue – cost)/cost x 100
For example, suppose you planned and executed an Instagram campaign that cost a total of R$5,000.
Through it, it was possible to achieve total revenues of R$20,000. Thus, through the formula above, the ROI was 300% or, alternatively, for every R$1 invested, the return was R$3.
Payback Calculation
Now, let's calculate the payback. The data you need to have on hand is the initial investment value and the profit in a given period of time.
In this sense, the term used is months or years. To do this, simply use the formula below:
Payback = Initial investment/ earnings in a given period
For example, suppose that it was necessary to invest a total of R$40,000 and that the monthly earnings are R$4,000. Therefore, the payback is 10 months, that is, 10 earnings periods are needed to recover the investment.