Return on investment (ROI) is a performance metric used to evaluate the efficiency or profitability of an investment. It helps teams understand whether the resources spent (money, time, effort) on a campaign, tool, or strategy are generating meaningful returns.

A positive ROI means you’re gaining more than you’re spending, while a negative ROI means the investment didn’t pay off.

ROI is commonly used to:

• Justify marketing spend
• Compare the performance of sales initiatives
• Prioritize budget allocations
• Report to stakeholders or executives

While helpful, ROI alone doesn’t always capture the full picture. It’s often used alongside metrics like customer lifetime value (CLV), payback period, or net profit.

Formula:

ROI = ((Revenue - Cost) ÷ Cost) × 100

Example:

If you spend $5,000 on a paid ad campaign and it brings in $20,000 in revenue, your ROI would be: ((20,000 – 5,000) ÷ 5,000) × 100 = 300%