💼 ROI (Return on Investment)

ROI (Return on Investment)#

The ratio of net gain to the cost of an investment.

Important

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What it is#

ROI (Return on Investment) is a profitability metric: how much return — gain or loss — an investment produces relative to its cost. It answers, for every $1 spent, how much profit came back. It appears everywhere — marketing campaigns, product launches, financial portfolios, and operational change.

The formula#

\[\text{ROI} = \frac{\text{Gain from Investment} - \text{Cost of Investment}}{\text{Cost of Investment}} \times 100\%,\]

where the gain is the incremental revenue or benefit and the cost is the treatment cost, campaign spend, or project cost.

A worked example#

A promotion generates $15,000 of incremental revenue for a $10,000 cost. Then ROI = (15,000 − 10,000) / 10,000 × 100% = 50% — every $1 spent returned $1.50, a 50-cent profit on the dollar.

Variations, and the uplift view#

Common variants include marketing ROI (on incremental campaign revenue), ROAS (revenue over ad spend), risk-adjusted ROI (accounting for variance), and time-adjusted ROI (NPV, IRR). In uplift modeling, ROI is computed from incremental revenue against treatment cost, which steers spend toward persuadables — those where incremental benefit exceeds treatment cost — and away from sure things and lost causes.

Theme: Business & Growth Analytics · All terminology

Hint

Mind map — connected ideas

Treatment Cost · Incremental Revenue · Treatment Effect · Valuation Metric · Gross Margin · SLI (Service Level Indicator)

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More in Business & Growth Analytics

Blended CAC (Customer Acquisition Cost) · CAC (Customer Acquisition Cost) · Cannibalization · Channel-Specific CAC (Customer Acquisition Cost) · Churn · Cohort · Cohort-Based LTV (Simple Version) · Conversion Rate (CR) · Cost-Per-Click (CPC) Models · Cross-Selling · CTR (Click-Through Rate) · Customer Lifetime · Customer Segmentation · D2C (Direct-to-Consumer)