How to compare advertising ROI across online and offline

Key takeaways

Advertising ROI for a small business is the profit an advert produced, minus what it cost, divided by what it cost. Used the same way for every channel, it lets you compare a leaflet with a social campaign. It is only as good as your tracking.

• ROI = (profit from the advert − cost) ÷ cost × 100.
• Use profit, not turnover, or every channel looks good.
• Include production and time in the cost.
• Compare channels over the same period.

What is advertising ROI?

Return on investment (ROI) is the gain from an activity as a percentage of its cost. Return on ad spend (ROAS) is a simpler cousin: revenue divided by advert spend. ROAS is quicker, but it ignores your costs, so ROI is the safer figure for deciding where the budget goes.

• Social media marketing vs traditional advertising: what works better for SMEs?
• How to measure social media ROI

How do you calculate it?

Work through the same four steps for every channel.

• 1. Count the sales traced to the channel.
• 2. Work out the gross profit on those sales.
• 3. Subtract the full cost of the channel.
• 4. Divide by that cost and multiply by 100.

• Cost per lead by channel: comparing social media and offline

What does a worked example look like?

Here is an illustrative comparison over three months. A leaflet campaign cost £900 and produced six jobs with £350 gross profit each: £2,100 of profit, an ROI of 133%. A social media campaign cost £1,800 and produced 14 jobs at the same profit: £4,900, an ROI of 172%. The figures are invented to show the method.

• Leaflets vs social media ads: which wins local customers?

Which costs belong in the sum?

Every cost the channel would not exist without belongs in the sum.

• Media: space, airtime, delivery or advert spend.
• Production: design, print, photography, video.
• Fees: agency, freelancer or software.
• Time: staff hours at their real hourly cost.

• The hidden costs of traditional advertising
• Is social media marketing free? The real cost of 'free'

How do you trace sales to an offline advert?

Trace offline sales with a code, a dedicated number or web address, and by asking every enquirer how they heard of you. Record the source against the customer, so that when they buy, the sale is credited. Without that link, the ROI of any traditional channel is a guess.

• How to track offline advertising: six methods that work
• 'How did you hear about us?' Asking the question properly

What about customers who come back?

If customers return, a first-sale ROI undervalues the channel. Use the profit from a typical customer over a year or more where you can estimate it. This matters most for services with repeat visits, such as salons, clinics, restaurants and maintenance contracts.

• Advertising payback period: how long until it pays for itself?

What does good tracking cost?

Very little. A shared enquiry log and a habit of asking cost nothing. Paid social can be tested from £300–£500 a month and reports its own results. Most UK SMEs using an agency pay £950–£2,500 a month for managed social media, which normally includes monthly reporting.

• Build a social media reporting dashboard

Where does ROI fall short?

ROI falls short for activity that works slowly or indirectly. A buyer may see your van, a leaflet and several posts before calling, and the last one gets the credit. Research for the IPA shows brand effects build over years. Treat ROI as a guide to response channels, not a verdict on everything.

• Marketing attribution for small businesses, kept simple
• Brand building vs sales activation: the small business view

What does this look like in practice?

A pattern we see when firms first work out returns: turnover is used in place of profit, so every channel appears to pay several times over. Redoing the sum on gross profit, with time included, changes the ranking and usually removes one channel from the plan.

• See client work
• Social Media Marketing for UK businesses

Next step

Take your biggest channel and calculate its ROI for the last quarter using gross profit and full cost. Then do the same for the second biggest.