Return on investment (ROI) is metric businesses and marketers use to figure out how well their investments perform. They use ROI to understand where to invest more, where to invest less, and compare different investments.
[TOTAL RETURN or NET INCOME] / [TOTAL INVESTMENT] x 100 = [ROI]
For example, you’ve invested $5,000 into a marketing campaign. It generated you $20,000. Your ROI would be 15,000.
20,000 / 5,000 * 100 = 400%
A positive ROI shows that investment brings more money that has been spent.
A negative ROI shows that you’re losing money.
A neutral ROI shows that you’re breaking even.
It’s important to understand that not all investments bring direct ROI. You should not calculate ROI on every investment you make. For example, culture and people.
How long does it take to get ROI?
Sometimes ROI takes months, years, and even decades. Many investments are like children. Imagine you’ve invested 9 months in carrying a baby. Once the baby is born, you expect it to go to work and bring money.