What is ROI on Sales?
ROI on Sales measures the effectiveness of marketing efforts by comparing the revenue increase directly to the marketing costs. It tells you how much net profit each marketing dollar generates and is essential for evaluating campaign performance and optimizing budget allocation.
How to Calculate ROI on Sales
Here is the formula:
[\text{ROI Sales} = \frac{\text{Sales Increase} - \text{Marketing Costs}}{\text{Marketing Costs}} \times 100]
Where:
- Sales Increase is the additional revenue generated from marketing efforts.
- Marketing Costs are the expenses incurred for those marketing efforts.
The result is expressed as a percentage.
Calculation Example
A marketing campaign costs $500 and generates $3,000 in additional sales.
Subtract the marketing costs from the sales increase:
[\text{Net Profit} = 3{,}000 - 500 = 2{,}500]
Divide by the marketing costs and multiply by 100:
[\text{ROI Sales} = \frac{2{,}500}{500} \times 100 = 500]
The ROI on sales is 500%. This means for every dollar spent on marketing, you earned five dollars in net profit.