# What is ROI and how is it Calculated?

What Return on Investment (ROI) means?

RETURN ON INVESTMENT ( ROI)

Definition: It is the ratio between the Net profit and Cost of investment resulting from an investment of some resources.

If we talk about ROI in a layman language it means the total amount we receive after deducting all over expenses i.e ( net profit)  divided by the amount we invested for running the business which is also known as capital, multiply by 100.

The formula for calculating ROI

ROI =( Net Profit / Cost of Investment) x 100

Where,

ROI stands for Return on Investment

Net Profit the amount we earn after subtracting all allowances business expenses.

Cost of Investment the amount which we invested to start the business.

ROI in SEO and PPC

It is normal human behavior that everyone expects a profit on his investment whether it will be in any field, let’s suppose in our daily life if we invest Rs.10 then we expect bare minimum profit from that small piece of investment. So, in the same, every client expects from a search marketing agency.

ROI may differ to figure out in SEO & PPC :

The scenario in SEO ROI :

• Search engine ranking: In this, we have to make it sure whether the short-tail keywords perform well or long-tail keywords in SERP. It hardly matters from where the traffic is targeted from SERP.
• Building Links: If we are working on building links for generating leads, to rank our website or running any campaign then we have to include a list of inbound links that resulted in purchases, which includes details from organic search engine traffic as well.
• In SEO we can calculate ROI  for which we need a few things:
1. Keywords( Volume of keywords also)
2. Cost of SEO
3. No of potential new clients
4. Profit per new client

The scenario in PPC ROI: In PPC, if we are talking about ROI it is ROAS which means a return on ad spends.

ROAS = PPC Revenue – PPC Cost/ PPC Cost , usually shown in percentage .

How ROI Changes

The scenario of ROI in PPC:

Scenario  1:

• Average sales increase = ROI also Increases
• Average sales decreases = ROI also Decreases

IDEAL SITUATION = Average  Sales  should increases

Scenario 2:

• Cost per click (CPC) increases = Cost on advertising increases, then ROI Decreases

IDEAL SITUATION = CPC should Decrease

Scenario 3:

• Conversion rate increases =Low cost on advertising to get sale, so ROI, in turn, goes up.

IDEAL SITUATION=Conversion rate should increase

For determining the ROI of any campaign we need to focus on these elements :

• Clicks
• Conversions
• Revenue

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