What are the components of an effective ROI calculator?
ROI means return-on-investment. This indicator can be seen in many different interpretations around the world. In this blog article, we will show you the components of an effective ROI calculator.
The following information material is tightly connected to our free ROI calculators, published recently. You can use our free tool to estimate the realistic return-on-investment of your lead generation digital campaigns or see clearly the ad spend needed to reach your set business goals.
At this point, it is not avoidable to explain the main differences between a ROI and a ROAS calculator.
For webshops, or in other words, e-commerce businesses people use mainly the term ROAS (return-on-ad-spend), this is a bit different than the case of lead generation digital ads.
The term ROI covers the overall return-on-investment. Different approaches can cover different costs within the “investment” part, meaning a huge difference regarding achievable results. Some calculations regard as investment only the ad costs, while other approaches can cover also fixed costs and procurement costs, or in the case of services, office rental costs and HR costs as well.
Our ROI calculator for e-commerce covers mainly the ad costs and can be regarded as a ROAS calculator for webshops. Our ROI calculator for lead generation campaigns can cover other costs as well, according to your choice.
In our below blog post, we explain the basic elements of our lead generation ROI calculator.
Planned monthly advertising budget
In other words, the monthly advertising budget, that is, the amount you spend on online advertising in the given calendar month. Other costs (e.g. the fee of the agency managing your ppc campaigns) are not included.
It is important that the amount spent on advertising is almost directly proportional to the results that can be achieved. It means that if our website conversion rate is 1%, an ad click costs 1 EUR on average and you spend 1,000 EUR on ads per month, you can expect to get 10 leads per month, while with the same parameters, from a monthly advertising budget of 10,000 EUR you can get 100 leads per month.
Let’s set realistic goals: with an investment of 1 EUR, we cannot achieve results corresponding to an investment of HUF 100 – no matter how hard we try!
Basically, the bigger the amount of leads we want to achieve, the bigger the advertising budget we need.
However, there is a minimum daily campaign budget, below which it is almost unnecessary to advertise, because the amount of advertising will be enough to earn so few clicks, and there will not be enough data on the campaign for any optimization or performance improvement.
This suggested minimum advertising budget ranges between 50 and 150 EUR per day, depending on the advertising channel.
Average cost per click (CPC)
The average CPC (cost-per-click) in the case of ppc ads means how many EUR on average you can buy a click on your website from online ads.This depends on several factors. The more professional your ads and the higher the ad relevance, the better your landing page and the more attractive your ad text (at the same time your business offer itself) and the smaller the advertising competition, the cheaper you can get a click.
In contrast, the less attractive your ads (and with it your business offer) and irrelevant your ad texts, the weaker (e.g. slow loading, difficult to use on mobile devices) and irrelevant your landing page and the fiercer the advertising competition, the more expensive you can get a click to your website.
When advertising in the Google search engine, you should expect a significantly higher average click cost (on average it ranges from 0,1 EUR to 5 EUR in the EU) than advertising in the Google display advertising network or Facebook ads.
A landing page is irrelevant for example if you advertise on Google search for your main competitors, since you are not them, the ad relevance will be low and the average cost per click will necessarily be high.
However, you can expect a lower average click cost for example if the product/service you offer is a protein shake, your landing page contains the products we offer, your landing page is easy to use on mobile devices, informative and convincing, and you advertise on the keyword protein shake in the Google search engine.
You can check the average cost of a click in your Google or Facebook advertising account, but it can also be easily calculated if you divide your monthly advertising cost by the number of clicks obtained – only landing on your website. Attention! If you also run other ad formats, which do not lead interested parties to your website – e.g. clicks on the discovery video ad to view the video, clicks to expand the gmail ad – , then these clicks should not be taken into account when determining the average cpc!
Number of clicks
Click-throughs from your online ads to your website or campaign landing page are the first step in acquiring interested parties, i.e. leads.
With online ads you can primarily buy clicks to your website , and the persuasion of potential interested parties who clicked on the ad is happening on your website.
The number of clicks your monthly advertising budget allows you to purchase also largely determines how many leads (contacts from your website) you can get from these website visitors.
For example, if you run a Google search ad with a monthly advertising budget of 1,000 EUR and the average cost per click you can achieve is 1 EUR, it means that you can get 1,000 clicks on your website per month. The conversion efficiency of your campaign landing page or website – that is, its persuasiveness – depends on how many of one thousand visitors you can get who are seriously interested and who submit the contact form on our website or send us an email or call us.
If your monthly advertising budget is not enough to get at least a few thousand clicks from the ads per month, realistically you can expect less than 10 lead per month. The explanation for this is that the conversion rate of lead-generating websites worldwide – regardless of industry – ranges between 1 and 5% (that is, out of 100 visitors 1 conversion (lead) means a 1% conversion rate, 3 means a 3% conversion rate, and 5 means a 5% conversion rate).
Conversion rate on the website
Commonly known as the conversion rate.
It is important to know that the conversion rate is most influenced by the landing page of the campaign, that is, your website. No matter how professionally your online ads are optimized by the ppc agency entrusted with this, it will not bring results if your campaign landing page is not suitable. The persuasion of potential interested parties who click on the ads takes place entirely on the website, online ads only perform the function of attracting attention.
The target conversion rate is influenced by many features of your landing page, e.g.
- Page loading speed – no one will wait for your website to load if it takes more than 3 seconds. Google’s current recommendation is a maximum of 2 seconds! With each additional second over 2 seconds, your expected conversion rate drops to half of what was expected before!
- Landing page usability in different screen resolutions and on mobile devices
- The uniqueness and competitiveness of the product/service offer itself
- The persuasiveness of the landing page (arguments used for persuasion, credibility, ability to build trust)
- The conversion optimization of the landing page (CRO – conversion optimization), the ease of reaching the main conversion (e.g. the presence of call-to-action elements).
The average conversion rate of lead generation websites ranges between 1 and 10% worldwide. If the target conversion rate of a lead-generating website is below 1%, then we are talking about a weak landing page, a website with a conversion rate of 3% is already considered outstanding, we rarely see a target conversion rate of 5% for lead-generating websites.
The target conversion rate greatly influences the effectiveness of your online advertising campaigns. You have to buy multiple clicks if the conversion rate of your landing page is low compared to if you have a landing page that converts well. Your conversion rate has a much greater influence on the average cost of acquiring a lead than the cost of a click!
# of leads per month |
website goal conversion rate |
required clicks | Avg. CPC | monthly ad budget | CPA |
50 | 1% | 5000 | € 1,00 | € 5 000 | € 100 |
50 | 3% | 1666,65 | € 1,00 | € 1 667 | € 33 |
50 | 5% | 1000 | € 1,00 | € 1 000 | € 20 |
50 | 10% | 500 | € 1,00 | € 500 | € 10 |
100 | 1% | 10000 | € 1,00 | € 10 000 | € 100 |
100 | 3% | 3333,3 | € 1,00 | € 3 333 | € 33 |
100 | 5% | 2000 | € 1,00 | € 2 000 | € 20 |
100 | 10% | 1000 | € 1,00 | € 1 000 | € 10 |
200 | 1% | 20000 | € 1,00 | € 20 000 | € 100 |
200 | 3% | 6666,6 | €1,00 | € 6 667 | € 33 |
200 | 5% | 4000 | €1,00 | € 4 000 | € 20 |
200 | 10% | 2000 | €1,00 | € 2 000 | € 10 |
Number of leads
It means the number of interested persons (leads) that can be obtained with our online campaigns per month.
How many leads we can realistically obtain from our advertising budget in a month depends on the following factors and variables:
- Amount of monthly advertising budget
- Average cost per click (Average CPC)
- The target conversion rate and conversion efficiency of the website/landing page.
It is important not only to focus on the quantity of leads, but also on the quality! It’s no use getting a lot of leads if you can’t effectively convert them into paying customers (if this is the case, then we can talk about a lead quality problem). First of all, focus on the right lead quality and only then on the quantity!
Average cost per lead (CPA)
It is also called average cost-per-action or cost-per-lead, it means how much HUF you are able to get one lead for with the help of online ads.
It is not possible to determine a reference value, because it depends on many variables how many HUF it is realistically possible to obtain a lead, that is, a serious interest. The variables are:
- Do you want to get B2B or B2C leads?
- What is the value of the product/service you sell? (In the case of a cheaper product/service, it is typically easier to convince interested parties, decision-making is faster and thus the average cost per lead acquisition can be lower.)
- How simple or complex is the product/service for which you want to acquire interested parties? (It is basically easier and faster to sell a simpler product than a complex product that needs a lot of explanation.)
- Amount of monthly advertising budget
- Average cost per click (Average CPC)
- The target conversion rate and conversion efficiency of the website/landing page.
There is no benchmark data on what constitutes a good average lead acquisition cost in the B2C or B2B market worldwide or in Hungary, as the question is highly dependent on the industry and product/service.
However, you can easily calculate the maximum possible cost per lead acquisition for your company, which still brings a positive return, for which you need to know the following data:
- Average value of a deal (revenue)
- How many inquiries (leads) will become a closed deal.
With these two data, we get the maximum amount of money worth spending on acquiring a lead in order to achieve a positive return.
If you already run online ads, the average cost of acquiring a lead is shown by dividing the spent advertising budget by the number of leads obtained from it.
The average value of a closed deal
Knowing how much revenue you generate on average from a successful business is key to making any ROI calculations for your online advertising. Just think about the fact that you primarily want to achieve orders, purchases, and contract signing through our online ads!
If you know the average revenue we realize at a store and how many leads will make a successful store, then you can calculate the maximum cost of acquiring an online prospect (that is, the maximum amount worth spending on it in the advertising budget).
Number of contracts
It is important to distinguish the number of leads from the number of successful deals.
From online ads primarily you can obtain people who are interested in your service/product, who are later included in the sales process in order to conclude a successful deal.
The number of contracts indicates the number of successful deals, not the number of leads, that is, the people who are simply interested in your business.
If you have a CRM system or software, you do not need to estimate the rate of successful contracts from the number of leads (which typically ranges between 10 and 50% in any industry), but you can measure it precisely, and you can even use this information while optimizing your Google Ads campaigns. Then there will be no question as to which leads have turned into a successful business, because you will know definitely (however, this requires a sufficient amount of leads, which is at least 100-200 per month).
The average cost of a closed deal
This indicator is very similar to the average cost of acquiring a lead, but represents the specific cost of successful deals.
If you measure the leads in your campaigns (first contact from interested parties to your company) and you know what percentage of the leads will result in a contract (successful deal), then you can calculate the specific advertising cost per successful contract.
If in your online campaigns you would like to follow the conversion path not only to the leads, but also to the successful contracts, to know exactly which leads will lead to business, you will be able to flollow this up with the option of offline conversion measurement, if you have a CRM system.
What percentage of leads (e.g. request for quotation, submission of contact form, phone call) will become customers
It can be expressed as a percentage, it tells that if you obtained 100 leads in a month with online ads, how many purchases, deals, and contracts did you actually realize. If you have 20 customers, then your ratio of contracts from leads is 20%, if you have realized 30 deals, then your ratio of contracts from leads is 30%, if you have 50 successful deals, then it is 50%.
In the case of lead generation (regardless of whether it is B2B leads or B2C leads), the lead-to-contract ratio varies in a very wide range, the benchmark ratio typically ranges between 10 and 50%.
ROI
Calculating the true ROI requires a much more complex task and formula.
We can use it as ROAS (return-on-ad-spend), so to speak, with the help of which we can find out how many times the money we spend on advertising is returned as income. The above calculator also helps to determine this.
A frequently asked question is what is the realistic ROAS that can be achieved with online advertising. Of course, this can vary greatly from industry to industry and for B2B and B2C markets. To determine what is a realistically achievable ROAS – which can range widely from 1 to 50 – several factors must be taken into account, for example
- Selling price of offered product/service (cheap, mid-priced or expensive)
- Profit rate of the offered product/service in EUR (if this is too low, e.g. a few EUR, then the ads have little room for maneuver and will definitely not be able to bring a positive return)
- Nature of offered product/service (simple or complex, consultative)
- Strength of advertising competition
- Nature of the market (saturated, mature, unexplored)
- Website/landing page adequacy.
To determine the final ROI, we have to take into account not only the amount spent on online advertising, but also countless other cost components, so calculating the final ROI is a very time-consuming and very, very complex financial task.
If we want to calculate an absolute ROI, these are the cost elements that should be taken into account:
- in the case of a service, all its cost components, from human resource costs to office rent and printing paper
- In the case of a product, also accounting for all cost elements related to production, delivery, and sales
- the fee of the agency that manages the online ads
- commission paid to salespeople after successful deals.
So we can see that the complex ROI calculation is a very time-consuming, very complex task.
You can try out our ROI calculator for lead generation campaigns here.