How to build an ROI calculator?
An RoI calculator usually requires a simple calculation along the lines of:
RoI (%) = Net Gain ($) / Total Cost of Investment ($) * 100
Note: This can also be written as
RoI = (Total Gain from Investment / Total Investment - 1 ) x 100.
While a simple calculation, clients usually will not be able to estimate the forwarding-looking Net Gain off the top of their mind. So you will have to structure the calculator questions in a way that the client can easily answer them. Let’s break down this calculation with an example of calculating RoI of buying a subscription to the Outgrow Platform.
The first input we need is the Net Profit or simply put, how much money can one make net of costs. In formula terms:
Net Gain ($) = Marginal Gross Profit from Investment ($) - Total Investment ($)
While total investment is a an easy number to discern (since you are the seller you already know that answer), calculating Marginal Gross Profit can be slightly tricky and needs to be broken down further:
Marginal Gross Profit ($) = New Customers (#) x Marginal Gross Profit Per Customer ($)
Note: Marginal Gross Profit per customer is sometimes referred to as Customer Lifetime value.
The customer will usually know the revenue per customer but might need help calculating the number of new customers he can get from calculators. That will not be obvious up front.
New Customers (#) = Number of New Prospects x Sales Conversion Rate
For Outgrow, we know that our calculators increase conversions on landing pages by 28% on an average. Hence, the number of prospects or leads generated will be 28% more"
New Customers From Calculators (#) = (Current Number of Prospects x 28%) x Sales Conversion Rate
The current number of prospects and the sales conversion rates are both numbers that our users should know without any further breakdown. So our final formula break down will be:
RoI (%) = Net Gain ($) / Total Investment ($) x 100
RoI (%) = (Marginal Gross Profit from Investment ($) - Total Investment ($)) / Total Investment ($) x 100
RoI (%) = ((New Customers from Investment (#) x Marginal Gross Profit Per Customer ($)) - Total Investment ($)) / Total Investment ($) x 100
RoI (%) = ((((28% of Current Number of Prospects) x Sales Conversion Rate) x Marginal Gross Profit Per Customer ($)) - Total Investment ($)) / Total Investment ($) x 100
So the entire calculator requires 3 simple inputs from the user and can calculate RoI.
This is a simple RoI calculation that provides a basic level of accuracy. We can go a little deeper and further distill the formula to come up with a more accurate forward looking ROI. If you’re interested in that, read on.
With data reported through our clients, we know that sales conversion rate is higher by about 12% when a client comes through a calculator. This is because a sales rep has more information and can target better while a client has more trust in a transparent brand.
If we would like to incorporate this case as well, then we just need to add 12% to the original sales conversion rate.
RoI (%) = ((28% of Current Number of Prospects) x (Original Sales Conversion Rate + 12%) x (Marginal Gross Profit Per Customer ($)) - Total Investment ($)) / Total Investment ($) x 100
Similarly, you can go deeper and further distill the numbers but we need to keep in mind that these calculators are for marketing and/or for lead generation, so we need to balance simplicity with accuracy. If we ask too many questions, no doubt we can increase the accuracy but we do run the risk of having a high bounce rate.