The return on investment (ROI) is the ratio of profits gained in relation to the investment. ROI is usually expressed as a percentage. Although some benefits or costs are considered “intangible” or “unquantifiable,” these must be quantified or clearly excluded to do a proper ROI calculation.
ROI can be calculated across all company activities down to a single communication (such as a specific email campaign) as long as the costs and profits can be tracked.
ROI calculation is often used to prioritize investments, campaigns, and choices of communication channels. An ROI calculation can be part of a business case or campaign evaluation. When comparing different options, the method of defining costs and profits should be the same. Often there are differences or difficulties in attribution of profits. Companies need to know which campaign or channel should get credit for profits on a given project.
Method of calculation
ROI = (gain from investment – cost of investment) / cost of investment
For instance, if your profits from an email campaign are $5000 and the cost is $1000 dollars, the ROI would be 400% or (5000 – 1000) / 1000