Welcome to the first edition of our new weekly blog series, Marketing Definitions. Each week, we will identify an oft-used term or phrase in the marketing community and break down its use and meaning for the broader population.
Today’s Term = ROI
ROI stands for Return on Investment. It is used by marketers to refer to the revenue or profit generated from some predefined marketing campaign. It is a measurement of effectiveness, accounting for the costs and results of some process.
The most common way of calculating return on investment is the following equation:
ROI = (gain from investment – cost of investment) / cost of investment
In plain for most marketing campaigns, that means the revenue generated by the campaign, minus the cost of the campaign, divided by the cost of the campaign. If a campaign produced $10,000 in revenue, and cost $1,000 to produce and run, then the ROI would be 900% (we report ROI most often as a percentage).
The higher the ROI, the more effective a campaign.
But not all uses of ROI will refer directly to revenue and cost in such deliberate ways. For example, costs could include the time it takes to do something, the other activities you have to give up in order to do this particular activity, or the risks associated with it. Gains could include future savings of money or time, growth in loyalty or retention, greater brand awareness or social media followings.
But almost all gains and costs can, and should for the purpose of measurement, be assigned dollar figures.
That does it for today’s definition. Have a term you’d like defined in a future post? Email us or post it in the comments below.