How To Calculate Your Advertising Cost And Advertising ROI (2024)

The advertising cost calculator is what you need before jumping into an online advertising campaign of any sought. Unfortunately, many business owners and companies struggle with it.

Understanding how to calculate your advertising cost will determine how much you need to spend on a particular campaign and the profit that will come with those Ads.

The benefits that come with effective advertising cost calculation are many and determine how much you need to spend to break-even points on your yearly advertising budget.

In this post, we are going to discuss all the strategies you need to effectively determine your advertising cost and your advertising ROIfrom each of your advertisingcampaigns. having said that, let’s jump into it.
First, we are going to start with the basic definitions of the key terms to make things easy for you to understand.

Table of Contents

What is advertising cost calculator?

An advertising cost calculator is a simple toolthat helps both individuals and businesses to calculate their actual advertising cost for a certain fiscal year in order to determine how much money they have actually spent or will spend on subsequent advertising campaigns.

These tools are also capable of making projections on the possible ROI which most consider as the profitfrom those advertising campaigns.
In addition, when calculating advertising costs, one must take into consideration the following.

  • The projected budget for the Advertising
  • The expected CPC and CPM costs e.g ($2 per CPC and $5 per CPM)
  • The targeted conversion rate of the advertising campaign
  • The average sale price of products and how each customer worth
  • The conversion rate (What percentage of those customers will be converted)

The final results of these projections will be summarized into the number of clicks, the number of leads, the actual cost of CPC and CPM, the click-through rates (CTRs), etc. Those projections will help a business systematically enhance its advertising strategy.

What is Advertising cost?

In the most simple terms, we define cost as the total monetary value or the amount of money expended to acquire goods or services.

In business, costs are assigned to various goods and services acquired by a business over time to determine the true value of those products and their expected value or depreciation over a period of time. consequently, we define the advertising cost here as.

Advertising cost is the amount of money a business or an individual spent on advertising campaigns over a period of time. For instance, a particular business may assign or budget $5,000 for Facebook advertising, $6,000 for Google Advertising, and maybe $3,000 for TV and Radio advertising all in a one-year advertising budget.

Summing all that up will give you the total amount the company is willing to spend on advertising in that fiscal year which will be as follows ($5,000 +$6,000 +$3,000 = $14,000). Now, $14,000 here is considered the advertising cost the company is willing to invest in advertising in one year.

what is Advertising ROI?

Wikipedia definedReturn on investment(ROI) as the ratio between thenet profitand cost of investment resulting from an investment of some resources. In other words,ROI is basically Return On Investment. The makes Advertising ROI the return on investment of the money spend on advertising.

Even though you may see or hear of ROI many times but it simply means “what you get from an investment” It may be seen by many as the profit derived from a particular investment while others may see it as the net profit you get after deducting the total amount of the investment cost in a particular project or advertising.

How is ROI Calculated?

There is one formula used in calculating return on investment mostly everywhere. This is because ROI is an internationally recognized and used indicator to evaluate the gain on investment both in small and big businesses.

To some extent let’s say investment projects are declared successful only when their ROI is evaluated and determined.

Return on investment, or ROI, is theratioof a profit or loss made in a fiscal year expressed in terms of investment and shown as apercentageof increase or decrease in the value of the investment during the year in question.

The basic formula for ROI is ROI = Net Profit / Total Investment * 100. Or you can use the following ROI formula

How to calculate advertising ROI

So now you know the basic formula to calculate ROI. we will now proceed to show you how you can actually calculate your ROI on advertising.

Using the same figures we used previously, ($5,000 + $6,000 + $3,000 = $14,000). We can calculate this in a simple way to determine the actual Return on Investment of the $14,000.

Since we don’t have the net profit along with the $14,000 advertising cost, we can only assume that after spending $14,000, We gain $67,000 in revenue.

The $67,000 gained from advertising on various forums was able to increase our revenue by $67,000. Now having this figure, we calculate the advertising ROI as follows. First, we say $67,000 – $14,000 = $53,000 which now becomes our Net profit.

Now let’s take the Net profit of $53,000 / $14,000 * %100 = %378.571 ROI. In this case, our ROI is %378.571. This is how most online advertising campaigns’ ROI is calculated.

Now I believe you have a full understanding of ROI and calculating ROI. The most important thing you need to know is that when it comes to advertising from the business perspective, we calculate things a bit differently from the business perspective to truly arrive at the cost of advertising and the true advertising ROI.

This simply means that we have to consider other costs involved such as the cost of goods sold, our fixed cost, and deduct that from the initial ROI.
We demonstrate how this is actually calculated usingJeff Sauer’s example in the image below

Calculating cost per click CPC ROI campaigns

Calculating ROI on CPC campaigns is simple but first, you need to determine the cost of the CPC. In this case, let’s say you agree to pay $0.50 per click on your Google or Facebook Ads, On that particular campaign you end up having about 2,000 clicks for the entire campaign of one week.

Now, you will simply have to multiply $0.50 by 2,000 which will give you $1000. $1,000 here is the cost of this particular CPC campaign.

So, after spending $1,000 running your campaign, you were able to make sales worth $10,000 within that week. Having these figures will make things easy for you to determine the ROI of this CPC campaign and this is how you will get that.

First, Input the revenue generated during the campaign which is $10,000, deduct the cost of running the Ad which is$2,000 and you will arrive at $8,000. Now, in many cases, some marketers will consider $8,000 as the ROI of this campaign. However, In the business world, you are far from the true ROI.

The true ROI of this campaign will be calculated by taking the $8,000 which is the net profit and deducting the cost of $2,000 and then dividing it by the initial cost of the CPC ad which is $2,000. The answer here is always expressed in per cent as you will have to multiply your answer by %100.

Also, You will have to consider deducting other expenses that come with the Ads such as the advertising agency that help you run the Ads, the cost of goods sold, etc. this will help in giving more accurate ROI to your campaigns

Calculating CPM cost per 1000 impressions ROI

Using a simple Advertising cost calculator will help you calculate CPM ROI. The application of the same method and formula is applied in the CPC above.

The difference is that CPM ads costs are based on 1000 impressions or 1000 views per the agreed amount. It might be that you agreed to pay $5 for every 1000 impressions or views during the advertising campaign.

So, if you end up getting 200,000 impressions per one-week ad campaign, you will have to multiply 200,000 impressions by $5 which will give you the cost of $1,000. Take into account that $5 is for every 1000 impressions or views. Understanding how to calculate that will enable you to apply the above formula and determine your true ROI on your CPM campaign.

How to calculate profit from the advertising campaign

Many marketers use online advertising cost calculators to determine their profit from advertising. However, many of thoseAdvertising cost calculators have very basic formulas that only subtract the cost of advertising from the revenue generated during those Ads. This method does not give an accurate representation of the situation.

It only shows the net profit derived from that Ad campaign. The best way to determine the profit generated from a particular advertising campaign would be to consider all the costs associated with the ad campaign.

Costs such as the cost of goods sold, fixed cost, cost of service rendered, the cost of advertising agencies if any, etc. All these costs need to be deducted from the net profit generated from the Ad campaigns.

Using the above ROI formula will help a long way in determining the actual cost-profit and ROI on advertising campaigns.

How to profit from Advertising

Most companies advertise to increase their profit margin, However, very often you found out that is not the case, even though some advertise for exposure, the long-term goal is to attract customers and expand their sales in order to increase their revenue and profit.

Now that you understand how important profit is to advertising, how do you profit from advertising should be the main focus of your advertising? Below we outline a few but effective tips you need to profit from your advertising.

  • Research and know which platform your target audience are spending most of their time
  • Determine your Advertising budget and duration you will run your Ads
  • Determine your desired cost per CPM and CPC and make sure is always average or below average
  • Customize your ads to show on specific devices, time, and location
  • Always monitor your Click-through rate (CTR) to make sure is above average

The above-listed tips will reduce unnecessary costs and deliver your ads to only your potential customers. This will increase your conversion rate, increase your sales, and ultimately your profit. See some more tips in the video below.

Use our free advertising calculators

Free A/B Testing Calculator

CTR Calculator: Free Click through rate tool

Free CPA Calculator for advertisers

CPC Calculator: Free CPC campaign cost Calculator

Free CPM Calculator

Conclusions

Advertising can be potentially profitable for businesses if only it’s done right. The profitability is determined only when the true ROI is known.

We encourage all advertisers to take this seriously and always make sure they calculate their advertising ROI before carrying on with their Advertising campaigns.

If you have other tips on how to improve advertising profits, please let us know in the comment section of this post.

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How To Calculate Your Advertising Cost And Advertising ROI (2024)

FAQs

How do you calculate ROI for advertising? ›

How much profit you've made from your ads and free product listings compared to how much you've spent on them. To calculate ROI, take the revenue that resulted from your ads and listings, subtract your overall costs, then divide by your overall costs: ROI = (Revenue - Cost of goods sold) / Cost of goods sold.

How do you calculate advertising cost? ›

The formula to calculate advertising cost is as follows: Total Cost = Number of Impressions * Cost Per Impression OR Total Cost = Number of Clicks * Cost Per Click.

What ROI should I expect on advertising? ›

The rule of thumb for marketing ROI is typically a 5:1 ratio, with exceptional ROI being considered at around a 10:1 ratio. Anything below a 2:1 ratio is considered not profitable, as the costs to produce and distribute goods/services often mean organizations will break even with their spend and returns.

How do you calculate ROI with revenue and cost? ›

Return on investment (ROI) is a profitability ratio that measures how well your investments perform. In other words, ROI lets you know if the money you shell out for your business is flowing back in as revenue. To find return on investment, divide your net revenue by the cost of your investment.

What is an example of ROI in advertising? ›

An efficient marketing campaign may result in a cost ratio of 5:1—that is, $5 generated for every $1 spent, with a simple marketing ROI of 400%. An excellent campaign might see a cost ratio of $10 generated for every dollar spent (10:1) with a simple marketing ROI of 900%.

What is the easiest way to calculate ROI? ›

How do you calculate ROI? There are multiple methods for calculating ROI. The most common is net income divided by the total cost of the investment, or ROI = Net income / Cost of investment x 100.

How much should marketing cost for advertising? ›

5% Revenue Rule

There is also a general rule of thumb that you should aim at spending between 2-5% of your sales revenue on marketing. If your revenue were $1 million per year, your advertising and marketing budget should be $50,000 annually based on the 5% of sales revenue rule.

What is cost of advertising an example of? ›

Answer: Option b. Discretionary fixed costs refer to the cost that the management can easily avoid or change. For example, since advertising does not affect the quantity of goods produced or sold, the management can decide to either increase or decrease it.

What percentage of cost is advertising? ›

Advertising Budget Levels

Allocate a percentage of sales — This is as simple as allocating a specific percentage based on the previous year's total gross sales or average sales. It is common for a business to spend 2% to 5% of annual revenues on advertising.

What is an example of ROI? ›

For instance, an investment with a profit of $100 and a cost of $100 would have an ROI of 1, or 100% when expressed as a percentage.

How to calculate ROI in Excel? ›

If you've got your total returns and total cost in their own respective cells, it could be as easy as simply inputting “=A1/B1” to work out your ROI. Once you've got your result, you can just click the “%” icon. This will change your ratio into an easy-to-understand percentage.

Which form of advertising has the highest ROI? ›

The Marketing Method with the Best ROI: Email Marketing

In the Neilson study email marketing has the highest ROI of 675% when compared with any of the other major marketing methods. An email marketing campaign with a businesses website can be utilised to great success in order to increase sales and profits.

How do you manually calculate ROI? ›

Key Takeaways. Return on investment (ROI) is an approximate measure of an investment's profitability. ROI is calculated by subtracting the initial cost of the investment from its final value, then dividing this new number by the cost of the investment, and finally, multiplying it by 100.

What is the formula for ROI example? ›

Calculation Example

Let us understand the return on investment meaning better using the following example: Suppose an investor invested $1000 in the bakery in 2020 and sold his stock in 2021 at $1200. The above formula helps calculate the ROI in this case: ROI Bakery = (1200-1000) * 100 / 1000 = 20%

What is the formula for average ROI? ›

The formula for an average rate of return is derived by dividing the average annual net earnings after taxes or return on the investment by the original investment or the average investment during the life of the project and then expressed in terms of percentage.

What is cost per 1000 in advertising? ›

Cost per thousand (CPM), also referred to as cost per mille, is a marketing term that's used to denote the price of 1,000 advertisem*nt impressions on one web page. An advertiser must pay $2 for every 1,000 impressions of its ad if a website publisher charges $2 CPM.

What is the formula for cost per thousand in advertising? ›

How to calculate cost per thousand. To calculate your CPM rate, you need to take the total cost of your online advertising divided by the total number of impressions and times 1000. For example, if your ad campaign costs you $500 for 100 000 impressions, your CPM would be $5.

How do you calculate cost per 1000 impressions? ›

You calculate cost per thousand by taking the total cost of the advertising dividing is by number of impressions and times 1000. (CPM = cost/impressions x 1000).

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