Marketing Dictionary
Return on Investment (ROI)
Definition
A performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments.
Deep Dive
Return on Investment (ROI) is a fundamental performance measure used to evaluate the efficiency and profitability of an investment. It is calculated as the net profit of an investment divided by the cost of the investment, often expressed as a percentage. ROI serves as a universal metric that can be applied to virtually any investment decision, from marketing campaigns and product development to property acquisition and employee training, enabling businesses to quantify the benefit derived from their expenditures.
Examples & Use Cases
- 1A company invests $10,000 in a new software system that saves $20,000 in operational costs over a year, resulting in an ROI of 100% ( ($20,000 - $10,000) / $10,000 )
- 2A real estate investor purchases a property for $200,000 and sells it for $250,000 after $10,000 in renovations, yielding an ROI of 20% ( ($250,000 - $200,000 - $10,000) / $200,000 )
- 3A marketing campaign costs $5,000 and generates $15,000 in additional profit, resulting in an ROI of 200% ( ($15,000 - $5,000) / $5,000 ).
Related Terms
Return on Ad Spend (ROAS)ProfitabilityCost-Benefit Analysis