TV advertising has several crucial metrics used to analyze the benefits of ads and clarify their investment value. ROI is one of these metrics.
But what does ROI stand for? Let’s check it out and learn how to find out the efficiency of advertising deals and how to measure ROI.
What is ROI?
ROI stands for return on investment. This metric allows both advertisers and marketers of any business to define whether it is worth continuing to invest in deals in the near future.
To identify the ROI of CTV advertising, one should use a ROI calculator that determines the return of an ongoing ad campaign. The ROI formula is pretty simple:
((Investment Gain – Investment Cost) / Investment Cost) x 100
Marketing ROI is an indicator expressed in percentage that signifies the growth or recession of an ad campaign in gaining returns. It considers an entire investment, comprising additional marketing expenditures like design, allocation, software costs, and so on. Also, it can be presented in the form of a ROI ratio.
For instance, a company invested about $1,000 in a particular ad campaign C. After a month of its operation, it got $6,000 in return. Let’s determine the company’s ROI on advertising in accordance with the formula:
((6,000 – 1,000) / 1,000) x 100 = 500%
Thus, a company’s ROI in campaign C is 100% which means a business has a good return in this hypothetical situation: for each $1 spent it gets $5 back (a ratio of 5:1). Therefore, marketers can make predictions on scaling a company’s influence, reaching more consumers, and increasing revenue.
Let’s take another look at an example of ROI marketing. A hypothetical company contributed $10,000 to one completely new ad campaign. After three months of its operation, marketers decided its profitability. Each month brought different returns that were lower than the initial investment cost. For a three month-long campaign, it rounded up to $8,000. Accordingly, the ROI of a new ad campaign is the following;
((8,000 – 10,000) / 10,000) x 100 = -20%
A negative result means that a campaign’s net income hasn’t even covered the investment cost for a certain period: the hypothetical company lost $0.2 for every $1 spent. This shouldn’t be a reason to quit a deal completely. It might be a hint for a company to look over its advertising strategy and modify it a bit, or perhaps improve its marketing planning to make a campaign more effective.
A good ROI ratio is 5:1 for most businesses, while a ratio of 10:1 is considered exceptional. Any ad with a ratio lower than 2:1 is not lucrative.
According to the Chief Marketer report, when dealing with TV ad campaigns, one is well-run with a ROI between 300% and 500% (ratios of 3:1 and 5:1 respectively).
Clearing Up the Difference: Return on Investment vs. ROAS
When it comes to measuring the rate of an ad campaign’s success, two metrics are frequently used together: ROI and ROAS. They are equal in identifying whether a campaign made strides or not. But in digital marketing, these metrics identify different things and have distinctive formulas for measurement.
Since the meaning of ROI and its formula were explained above, let’s explore what ROAS is and how to measure it. ROAS stands for return on ad spend. It allows marketers to measure the overall income received for every dollar spent on an ad campaign. The formula for calculating this is:
Campaign Revenue / Campaign Cost
For instance, a company generates $2,000 on an ad on one of the CTV streaming platforms which cost $500. In this case, the ROAS is 4, which means the company made $4 for every $1 spent.
To clear up the differences between ROI and ROAS, here are some key points to consider:
|comprises all expenditures spent on an ad campaign to identify its profitability||reveals an income measurement generated for every dollar spent on a particular ad campaign|
|an essential metric for long-term planning||mostly used for short-term tactical planning|
What is the role of ROI in CTV marketing?
In the TV industry ROI is a vital metric because building a marketing plan for a new ad campaign requires well-considered steps to enforce marketing strategy and launch it. But what’s the best way to understand whether a current campaign is effective or not? In this case, it is time to assess the success of its performance utilizing the ROI formula.
With the help of this must-use metric, a marketer can evaluate the extent of its payoff that shows its efficiency for a certain period of its operation. At any rate, this indicator draws marketers’ attention to the aspects listed below:
- Advance the marketing strategy in real time. Return on investment is a good instrument to define whether applied efforts work or not. For some campaigns, one month can be enough to know whether the strategy is working in a company’s favor. This helps marketers check over each strategy’s stage and make decisions to enhance their marketing activities and come to its complete realization. For instance, by studying viewers’ behavior, one might notice that an ad campaign couldn’t reach the target audience on one of the television channels a marketer expected it to.
- Choose the right way to spend money. After optimizing a campaign strategy, sometimes the metric rate hasn’t changed or has even reached a deficit. At this point, it makes sense to redirect efforts and finances to campaigns that bring good marketing outcomes.
- Leverage marketing tools. Additional marketing instruments like Google Ads, CRM software, or Call Tracking software are a great help in achieving objectives in media marketing.
Thus, knowing marketing ROI helps drive a company to grow and allocate the budget properly.
Keeping in mind the ROI ratio standard of a good return, one should calculate it systematically to track whether a marketing strategy pays off for a company or not and enhance it in cases of low revenue. Negative indicators are not always about a lousy campaign. It’s a good incentive for a company at large to review its advertising and marketing planning, improve it with certain modifications and make it more effective and profitable.