ROI (Return on Investment) is a performance measure that divides the net gain from an investment by its cost, giving a percentage that shows how much was earned relative to what was spent.
Why it matters
ROI lets you compare very different spending choices, such as an ad campaign and new software, on one scale. It is a simple screening tool, but it ignores time and risk, so it works best alongside other measures. This entry is a definition, not financial advice. Teams often calculate ROI before a project to compare options and again afterward to check the result. The figure is only as good as the costs and gains included in it.
Example
A shop spends 2,000 USD on a campaign that produces 5,000 USD of profit before the campaign cost, so net gain is 3,000 USD. ROI is 3,000 divided by 2,000, which is 150 percent.
Common mistakes
- Counting revenue instead of profit in the gain.
- Leaving out staff time and tool costs from the investment figure.
- Comparing a one-month ROI with a one-year ROI as if they were equal.
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