"A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments." - Investopedia
ROI = (Gain from Investment - Cost of Investment) / Cost of Investment
The internet is very well set up for evaluating ROI as almost everything is measurable to some degree. With the aid of analytical tools you can determine exactly where your new customers came from and therefore which aspects of your internet marketing efforts are successful and which aspects need improvement.
Gain from Investment
GfI = Number of Conversions x Conversion Value
The gain from investment can be determined by looking at how many Conversions the website generated and the value of each conversion.
Cost of Investment
CoI = Initial (Startup Costs) + Ongoing Costs
The cost of investment is the total costs associated with the project such as developing the website and other web properties, doing research, developing strategies. The ongoing costs include things like link building, advertising and content creation.
Tracking Conversions
Google's free website analytics tool, Google Analytics, is a great option for tracking the conversions of your website. Using the Goal and Funnel features you can determine the path people took to eventually convert or where they dropped off the path if they didn't convert.
sources: Investopedia.com
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