Winning the Internet

How to calculate ROI

After a great run, the Winning the Internet blog has been retired. However, you can still keep in touch with New Media Mentors here.

ROI FireworksEver wonder if what you’re doing is worth it? If you’re spending money on marketing, some simple math can help you determine if your efforts are worthwhile or a big waste of time.

Nonprofits and causes rarely have extra money to spare, so it’s important that we spend the money we do have wisely. Calculating return on investment (ROI) can help you evaluate your paid marketing program and decide how to best spend your money in the future.

The formula

The basic formula for ROI is below. In this example, we’re imagining that we spent money on paid advertising, with the goal of raising money.

ROI = (Amount Raised – Amount Spent) / Amount Spent

So, if we spent $15 on advertising and raised $100, the ROI is 5.67. This means that for every $1 we spent, we raised $5.67.

ROI = ($100 – $15) /$15 = 5.67

How to find Amount Raised & Amount Spent

In order to do this calculation, you need to have the Amount Raised and the Amount Spent. It’s usually pretty easy to figure out the Amount Spent. After all, if you wrote the check or entered the credit card number, you should be able to track this down. Figuring out the Amount Raised can be trickier.

If you want to calculate ROI, it’s important that you’re able to figure out exactly how many dollars were raised as a result of a specific paid advertisement. If you setup an ad so it links to the main donation page on your website, this could be very difficult, if not impossible to do. So, before setting up your ad, you need to figure out what you need to do with your particular donation tool in order to track the donations from the ad (Amount Raised). In most cases, this will involve setting up a new donation page that you only use for one specific ad.

What to do when your goal is action, not money

Sometimes, you may want to run paid ads to get folks to take a specific action (sign a petition, etc.), not raise money. In this case, I recommend calculating the Cost Per Action Taken. It’s not exactly the same thing as ROI, but serves a similar purpose. The calculations look like this:

Cost Per Action Taken = Amount Spent / Actions Taken

So, if we spent $15 on advertising that resulted in 100 actions, the cost per action taken is $0.15.

Cost Per Action Taken = $15 / 100 = $0.15

In this case, you need to be sure to carefully track the number of actions taken as a result of the ad. You’ll need to figure out how to do this with your specific action tool, but it is usually as simple as creating a separate version of the action page for each ad.

Evaluating ROI & Cost Per Action Taken

You may be wondering what a good ROI is. Well, you definitely want it to be positive. If you’re spending more than you’re raising, your advertising is a waste of time. Beyond that, it’s subjective. If the ROI is pretty low, you should also think about how much time you spent creating and managing an ad. Does it feel worth it?

Cost Per Action Taken is a little tougher to evaluate. What is the true value of a petition signature or other action? Again, the answer is very subjective. My suggestion is to look at the Cost Per Action Taken and see if it passes the gut test.

ROI and Cost Per Action Taken are most helpful when comparing different types of ads, and deciding how to invest money in the future. If you’ve got some incremental budget and aren’t sure where to spend it, go for one of the promotions that gives you the highest ROI or lowest Cost Per Action Taken.

Doing these calculations can be a very empowering experience. Imagine – you’ll finally know if all of your hard work is paying off! So give it a shot, even if you’ve never done it before. If you have any trouble calculating ROI for your organization, feel free to ask questions in the comments.

About Melissa Foley

Melissa is the Director of Training and Mentoring for Netroots Foundation and New Media Mentors. She aims to use her MBA + nonprofit background to teach organizations to use new media tools strategically.

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