To evaluate how effective your marketing efforts are, you may want to track the return on your investment. In simple terms, marketing ROI is calculated by dividing your profits by the cost of marketing. To explain, imagine you are a trade show producer. You spend $10,000 advertising a show, and you earn $90,000 from the show. The ROI is 9, or 900%. Your profits are 900% of your original investment. In most cases, calculating marketing ROI can be a bit trickier than this example, and you may want to use different numbers that are more relevant to your business. For example, to measure profit, you may want to use revenue. However, to get a more accurate estimate, you may prefer to use gross profits, which consist of revenue minus cost of goods sold, or net profits, which takes all expense into account. You also have to determine which period of time you want to take into account. Similarly, when calculating the cost of marketing, you may simply want to include the direct costs, such as the price to put an ad in a marketing magazine. You could include payroll hours devoted to designing the ad or other indirect expenses. Even free or lean marketing typically has some overhead costs. Ultimately, the best ROI formula to measure marketing success depends on your personal objectives for your business. To compare the efficacy of different types of marketing, you should try to be consistent about which formula you use.
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