The acceptable ROI ratio will vary based on many factors, including industry benchmarks, the scale of the campaign, and the strategic goals of the business.
For businesses with high operational costs, a 3:1 ROI might be satisfactory but not stellar. On the flip side, low-cost, high-volume businesses might celebrate this ROI as a huge win.
It's critical to have a target ROI before launching a campaign. Knowing the desired ROI provides a framework for measuring success and makes it easier to decide if the results justify the investment.
Agencies often utilize historical data to set benchmarks tailored to specific industries, clients, or campaigns. By comparing ROI outcomes from past campaigns to current figures, an agency gains a richer understanding of what to expect and more accurately sets ROI goals.
Back-calculating required ROI also helps hit specific revenue targets. If a campaign needs to generate $80,000 in net profits and the available marketing budget is $20,000, the required ROI becomes 80,000/20,000 x 100, which is 400% or an ROI of 4:1.
However, a lower initial ROI (or even a negative ROI) might be acceptable if the Customer Lifetime Value (CLTV) is substantial and the client has the patience for long-term profitability. This perspective shifts the focus from immediate gains to sustainable growth, making a seemingly low ROI more palatable.
Digging deeper into ROI means breaking down the metric by channel, customer segments, or date ranges. For instance, calculating the ROI for paid search separately from social media provides insights into channel effectiveness, and looking at ROI for brand versus non-brand search campaigns provides insights into acquisition strategies. Calculating ROI for different customer demographics could reveal new opportunities or areas for improvement.
Incorporating an annualized ROI formula offers the benefit of standardizing ROI figures across different time frames, which provides more accurate comparisons and assessments of long-term campaign performance.