The term ROI stands for "Return on Investment" and is a measure of the profitability of an investment. It is calculated as the amount of money made, minus the amount invested, divided by the amount invested. ROI is a vital financial metric that can be used to evaluate any investment, from stocks to rental properties. It's also a key metric for evaluating marketing investments like pay-per-click ads.
The ROI formula typically uses the following formula: ROI = (Gain from Investment – Cost of Investment) / Cost of Investment. This is a simple calculation that can be used to determine the return on investment. This is calculated by subtracting the cost of an investment from its benefit and dividing this by the cost of that investment. The ROI is expressed as a percentage. There are two types of ROI:
1) Financial ROI: Financial ROI measures the return on an investment by comparing the profit gained from investments with the cost of those investments.
2) Social ROI: Social ROI measures how much social value a company generates for its stakeholders, such as customers, employees and shareholders, minus any social costs incurred by these stakeholders.