The Return on Investment is the ratio of money gained in relation to the investment. ROI is usually expressed as a percentage. Although some benefits or costs are “intangible” or “unquantifiable” these need to be quantified or clearly excluded to do a proper ROI calculation. ROI can be calculated across all company activities down to a single communication like a specific e-mailing (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. A 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. When a customer finally buys a product, to which campaign or channel should these profits be accredited to?
Method of calculation
ROI = (Gain from investment – Cost of investment) / Cost of investment
For instance if your profits from an email campaign are 5000 dollars and the costs are 1000 dollars. The ROI would be (5000 – 1000) / 1000 = 400%