Strategy
ROI (Return on Investment)
Also known as: Return on Investment
Plain English
What you get back compared to what you put in.
Definition
ROI measures the return generated by an investment relative to what it cost, allowing initiatives to be compared on a common basis. The costs are usually far easier to quantify than the benefits.
In practice
Used to evaluate the effectiveness and value of initiatives, projects, or campaigns.
In context
It is easiest to calculate where it matters least. The costs are precise, the benefits are estimated, and the projects with the clearest numbers are usually the least transformative.
The reality
ROI can be hard to measure accurately, especially for long-term or indirect benefits.
Compared with
ROI vs Payback Period
ROI is the total return relative to cost. Payback period is how long until you are square. A project with strong ROI over five years and a three-year payback may still be unaffordable this year.
FAQ
Common questions
A few practical answers to the questions that usually come up around this term.
What is ROI?
ROI is the return generated from an investment relative to its cost.
How do you calculate ROI?
By dividing profit by cost and multiplying by 100.
Why is ROI important?
It helps assess whether investments are worthwhile.
What affects ROI?
Costs, revenue, and glossaryEfficiencyEfficiency measures how quickly and easily users can complete tasks once they are familiar with a system.Open glossary term of execution.
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