ROI
Return on Investment (ROI) measures the profitability of an investment relative to its cost, providing a clear picture of marketing effectiveness in real terms. Unlike revenue-focused metrics, ROI considers net profit by factoring in all costs associated with generating revenue.
Understanding ROI
ROI is a fundamental metric for any business, yet in marketing it's often misunderstood or confused with similar metrics like ROAS. In ecommerce marketing, ROI goes beyond simple revenue figures to consider net profit, factoring in all costs associated with generating revenue.
This makes ROI a valuable strategic metric that bridges communication between different business departments. For instance, if profit margins change due to a new supplier, fluctuations in ROI can signal to marketing to adjust strategies without manually reviewing all margin data.
The key distinction between ROI and ROAS lies in what costs are considered: ROAS measures revenue generated for every dollar spent on advertising, focusing solely on ad costs and revenue from ads. ROI considers all costs associated with generating revenue, including marketing spend, production costs, shipping, employee salaries, and overhead expenses. ROAS helps judge ad effectiveness and is useful for assessing ad managers or agencies, while ROI provides comprehensive insights into how campaigns or products perform in reality, guiding resource allocation.
How to Calculate ROI
ROI = (Net Profit / Cost of Investment) × 100
Give it a go in our ROI calculator!
ROI Calculator
Calculation Example
Suppose your business requires at least 150% ROI on marketing campaigns to maintain profitability targets. You're planning a quarterly campaign with a $15,000 budget including ad spend, creative production, and management costs. Calculate the minimum net profit you need to generate:
Minimum Net Profit = Target ROI × Investment Cost
Minimum Net Profit = 1.50 × $15,000
Minimum Net Profit = $22,500
Aim to generate at least $22,500 in net profit from your $15,000 campaign investment to achieve your target 150% ROI and meet profitability expectations.
Note: Net profit means revenue minus all costs (product costs, shipping, fulfillment, AND marketing spend). If the campaign generates $50,000 in revenue with $15,000 in marketing costs and $12,500 in product/fulfillment costs, your net profit is $22,500 ($50,000 - $15,000 - $12,500), achieving exactly 150% ROI.
What’s Considered a Healthy ROI?
A "healthy" ROI depends on your business model, profit margins, industry, and growth stage, but understanding the fundamental economics is critical:
● Breakeven ROI is 0%—anything above is profitable. However, most businesses target significantly higher ROI to account for opportunity cost, risk, and growth needs. Target ROI typically ranges from 100-400% depending on industry and business maturity.
● Profit margins determine viable ROI ranges. High-margin businesses (software, digital products, luxury goods) with 60-80% margins can achieve ROI of 300-500%+ because most revenue flows to profit. Low-margin businesses (consumables, commodity products) with 20-30% margins typically see ROI of 50-150% because costs consume most revenue.
● Growth stage influences acceptable ROI levels. Early-stage businesses building market share may accept ROI of 50-100% while investing in customer acquisition and brand awareness. Mature businesses optimizing for profitability typically target ROI of 200-400%+ to justify marketing investment over alternative uses of capital.
● Channel and campaign type create wide variation. Brand-building campaigns often show 25-75% ROI short-term but create lasting value through improved organic performance and reduced future acquisition costs. Performance marketing campaigns targeting existing demand typically achieve 150-300% ROI immediately.
● Time horizon dramatically affects ROI calculation. SEO, content marketing, and email list building may show 0-50% ROI in month one but 300-500%+ ROI by month twelve as the investment compounds. Short-term ROI measurement undervalues long-term strategies while overvaluing quick-win tactics.
Tip: The most important benchmark is whether your ROI exceeds your weighted average cost of capital (WACC) and alternative investment returns. If you can generate 200% ROI on marketing but your business could generate 300% ROI expanding product lines, marketing investment destroys value. Always evaluate ROI in context of all growth opportunities.
ROI FAQ
What's the main difference between ROI and ROAS?
Should I include all costs or just marketing costs in ROI calculations?
Why is my ROAS high but my ROI low or negative?
How should ROI change as my business scales?
Can ROI be too high?
How do I account for long-term value in ROI calculations?
ROI Related Reading
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