marketing
ROI (Return on Investment)
Return generated per dollar invested. The universal yardstick for any spend decision.
Definition
ROI is (gain from investment - cost of investment) / cost of investment, expressed as a percentage. A $10K marketing spend that produces $40K in new revenue is a 300% ROI (gross). For service businesses, the more useful version is profit ROI: same spend, same revenue, but $14K gross profit = 40% ROI. Always specify which version. ROI on marketing should be tracked per channel - some channels look great in aggregate but mask losers. Time horizon also matters: an enterprise sale with a $100K LTV might justify a 6-month payback.
In your business
- →Track ROI per channel, not aggregate
- →Use profit ROI, not revenue ROI
- →Set a minimum ROI hurdle (e.g., 3:1) before scaling any spend