What Is ROI and How Do You Calculate It?

We are writing this piece as the groundwork for the next one. That next article will be “How Do You Calculate ROI in SEO?” So here on the Türk SEM blog we wanted to set out carefully what ROI is and how it is worked out.

ROI stands for “return on investment”.

What ROI Means

Return on investment (ROI) is the calculation that measures how well your investments are performing, and it gives you a percentage. Put another way, ROI tells you whether the money you put into your business is coming back as revenue, and what profit makes your business worth investing in. 

ROI = net profit / cost of investment x 100 = ROI (as a percentage)

You write ROI as a percentage. The larger the percentage, the better the investment.

The ROI Calculator

Note: in the net profit field, put what is left in your hand once every annual cost has come out.

A Worked ROI Example

The first step in finding your return on investment is subtracting the costs of the investment from what it earned. The cost side covers the expenses you paid that went straight into the investment. Shipping the products might be one of those costs, for instance, and you have to count every cost carefully. Your earnings cover any revenue you made from the investment. 

Item	Amount
Total revenue	500,000 TL
Cost of goods sold	250,000 TL
Operating expenses	100,000 TL

In the table above we set out the earnings and the costs of an example company. This company took 500,000 TL in total revenue. We also assumed it spent 250,000 TL on the cost of goods sold, the capital in the products, and 100,000 TL on operating expenses. A business with figures in exactly those proportions is unlikely in 2024, but we assumed one anyway.

First let us find the total cost of the investment. To do that we add the cost of goods sold to the operating expenses. 

Total costs come to 350,000 TL (250,000 TL + 100,000 TL).

Then we subtract the total costs from the total revenue.

The difference is 150,000 TL (500,000 TL – 350,000 TL).

Next we divide “the difference between what the investment earned and what it cost” by the total cost of the investment.

Item	Amount
Net gain on the investment	150,000 TL
Total cost of the investment	350,000 TL
Return on investment	42%

Dividing the net gain by the total cost gives 0.42 (150,000/350,000). To turn that into a percentage we multiply it by 100.

The return on investment is 42%.

That is a normal rate of return and it shows the company is using its resources efficiently. The higher the percentage, the better.

What Calculating ROI Gives a Small Business

For a small business owner, an ROI calculation puts an important figure in front of you. A healthy ROI can help you raise finance from outside. A high return lowers the risk coefficient for investors. And if you are applying to a bank for a business loan, your return on investment can show the lender that you are able to pay.

Your ROI can also help you run the business more efficiently and more soundly. You can use the formula to see how successful your investments have been. Say you are running digital marketing campaigns on Google Ads and Google SEO. To see which is producing more, you can work out the return on investment for each of them.

In our next article we will cover how to calculate ROI on SEO work, and on Google Ads in the same way. Follow our SEO and advertising blog and the Türk SEM social media accounts.