From this point on, we’ll be looking at advertising where we earn back at least as much money as we invested in the ad. But there’s something we need to do before we can go any further talking about ads. We have to figure out how to measure whether our ads are earning us money or not. It’s fine to say we want them to earn us money, and another thing entirely to know how to tell if they are. That’s what I’m going to walk you through this month and next month…
I love math and formulas, but if you don’t, don’t panic. It’s not complicated, and there are great tools out there to help you if you don’t want to start your own tracking system from scratch.
We’re going to want to track sales, page reads (if we’re in Kindle Unlimited…), and read through. What we’re looking for is a positive return on investment.
Calculating Your Return on Investment
Return on investment (ROI) is a measurement of how much we’ve gained or lost from an investment. In this case in particular, ROI is how much money we’ve lost from an ad or have earned from an ad.
Here’s the formula:
Return on investment = (profit / cost) x 100
(Multiplying it by 100 turns it into a percentage.)
Let me break that down a bit.
Cost is simply how much we paid for the ad. For our example, let’s say I bought a newsletter ad for $16.
For profit, we have to remember to calculate how much money we get to keep from each sale. Retailers takes a percentage of our sales, and if we don’t remove their cut, it’ll skew our calculations.
So, for example, from every sale made on Amazon.com on a book priced between $2.99 and $9.99, I earn 70% of the price. Amazon also charges a delivery fee. (You can find it in the monthly downloadable report. It’s based on each book’s file size.)
So the formula is (price – delivery fee) x royalty.
For one of my pen name’s $2.99 books, that math looks like this: (2.99 – 0.09) x 0.7 = 2.03. I make a profit of $2.03 for every book sold.”