Return on Investment (ROI)
Return on Investment measures the profitability of an investment by comparing the net profit (revenue minus all costs) to the total investment cost. In marketing, it considers all costs including media spend, creative production, technology, overhead, and operational expenses, making it a more comprehensive metric than ROAS which focuses specifically on ad spend.
Definition
Return on Investment measures the profitability of an investment by comparing the net profit (revenue minus all costs) to the total investment cost. In marketing, it considers all costs including media spend, creative production, technology, overhead, and operational expenses, making it a more comprehensive metric than ROAS which focuses specifically on ad spend.
Examples
If you spend $10,000 total and generate $15,000 in revenue, ROI is 50%
Marketing campaign with 200% ROI means every dollar invested returned three dollars
Negative ROI of -20% indicates losing 20 cents per dollar invested
Calculation
How to Calculate
Subtract all costs from revenue to get net profit, divide by total costs, and multiply by 100 to get percentage return. Consider both direct and indirect costs for accurate ROI calculation.
Formula
ROI = ((Revenue - Total Cost) / Total Cost) × 100Unit of Measurement
%
Operation Type
composite
Formula Variables
Comparison
Related Metrics
Return on Ad Spend (ROAS)
Return on Ad Spend (ROAS) is a marketing performance metric that measures the revenue generated per dollar of advertising spend. Unlike ROI which considers all business costs, ROAS specifically evaluates advertising efficiency by comparing directly attributable revenue to ad spend. This metric is crucial for optimizing campaign performance, budget allocation, and overall marketing strategy.
Click-Through Rate (CTR)
Click-Through Rate (CTR) measures the ratio of clicks to impressions for a digital advertisement, email, or other clickable content. It's a fundamental metric for evaluating creative relevance, audience targeting quality, and overall ad effectiveness in driving user engagement. CTR varies significantly by format, placement, and channel, making context crucial for performance evaluation.
Cost Per Acquisition (CPA)
Cost Per Acquisition (CPA) measures the average cost required to acquire a customer or generate a complete conversion, such as a purchase, subscription signup, or other primary business objective. This metric focuses specifically on marketing and advertising costs associated with customer acquisition, making it distinct from the broader Customer Acquisition Cost (CAC) which includes all business costs.
Conversion Rate
Conversion rate measures the percentage of users who complete a defined conversion action relative to the total number who had the opportunity to convert. This metric evaluates the effectiveness of marketing efforts, user experience, and overall funnel efficiency in driving desired outcomes. Conversion actions can range from purchases and form submissions to content downloads and subscription signups.
Engagement Rate
Engagement rate measures the level of audience interaction with content by calculating the ratio of measurable actions to total content exposure. Actions typically include clicks, likes, comments, shares, saves, reactions, and other platform-specific interactions. This metric helps evaluate content resonance, creative effectiveness, and audience relevance while accounting for reach or impression volume.
Video Completion Rate (VCR)
Video Completion Rate measures the percentage of video ad impressions that are watched to 100% completion. This metric helps evaluate creative engagement, message delivery effectiveness, and audience targeting accuracy while accounting for video length and placement quality. VCR is particularly important for brand messaging where full creative viewing is crucial.
View Through Rate (VTR)
View Through Rate measures the percentage of users who see an ad and later convert within a defined attribution window without clicking the ad. This metric helps assess brand awareness impact, consideration influence, and overall advertising effectiveness beyond direct response, particularly for upper-funnel campaigns.
Customer Lifetime Value (CLV)
Customer Lifetime Value predicts the total revenue a business can expect from a single customer account throughout the entire business relationship. This metric is crucial for determining sustainable customer acquisition costs, optimizing marketing spend, and identifying high-value customer segments. CLV helps businesses make informed decisions about customer acquisition and retention investments.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is a comprehensive business metric that calculates the total investment required to convert a prospect into a paying customer. It includes marketing spend, sales costs, technology infrastructure, and operational overhead allocated to acquisition activities.
New Customer Acquisition Cost (nCAC)
New Customer Acquisition Cost specifically measures the cost to acquire first-time customers, excluding costs associated with returning customer acquisitions. This metric helps distinguish between new customer acquisition efficiency and returning customer reactivation costs.
Marketing Efficiency Ratio (MER)
Marketing Efficiency Ratio measures the overall effectiveness of marketing spend by comparing total revenue to total marketing costs. It provides a holistic view of marketing performance across all channels and customer types, including both direct and indirect revenue attribution. Also known as 'blended MER' since it considers all revenue rather than just attributed revenue.
Attributed Marketing Efficiency Ratio (aMER)
Attributed Marketing Efficiency Ratio measures the efficiency of paid marketing efforts by comparing revenue directly attributed to paid channels against total marketing spend. This metric helps isolate the performance of paid marketing initiatives from organic revenue.
New Marketing Efficiency Ratio (nMER)
New Marketing Efficiency Ratio specifically measures marketing efficiency for new customer acquisition by comparing revenue from first-time customers to marketing spend. This helps evaluate the effectiveness of new customer acquisition strategies and initial purchase value generation.
Thumbstop Rate
Thumbstop Rate measures the effectiveness of creative in capturing attention by tracking the percentage of users who stop scrolling to engage with the content in their feed for a meaningful duration, typically 2-6 seconds depending on the platform.
Thumbstop Click Rate
Thumbstop Click Rate measures the effectiveness of creative in driving action by tracking the percentage of users who click on content after stopping their scroll for a meaningful duration. This metric helps evaluate both attention-grabbing and conversion capabilities of creative, providing insight into content's ability to not just capture but convert attention.
Impressions
Impressions measure the total number of times an advertisement is shown to users, regardless of whether they interact with it. Each time an ad appears on a screen counts as one impression, though viewability standards may require minimum exposure duration or percentage in view to count as a valid impression.
Share of Voice (SOV)
Share of Voice quantifies a brand's presence and visibility in the market compared to competitors or total market activity. It measures relative market presence across paid advertising impressions, organic social media engagement, PR mentions, and other trackable communications channels. SOV helps evaluate competitive position and communication effectiveness.
Churn Rate (CR)
Churn rate measures the proportion of customers who discontinue their relationship with a company during a specific timeframe. For subscription businesses, this means cancellations or non-renewals. For non-subscription businesses, churn is often defined as no purchase activity within a set period. It's a critical metric for evaluating customer retention and business health.
Customer Retention Rate (CRR)
Customer Retention Rate measures the proportion of customers who remain active with a company during a specific timeframe. For subscription businesses, this means continued subscriptions. For non-subscription businesses, retention is often defined as repeat purchase activity within a set period. It's a key metric for evaluating customer loyalty, satisfaction, and the effectiveness of retention strategies.
Moving Average
A moving average is a statistical calculation that creates a series of averages from different subsets of data over time. It helps identify trends by smoothing out short-term fluctuations and random outliers in metrics like CPC, CTR, or ROAS.
Exponential Moving Average (EMA)
An exponential moving average is a type of moving average that places greater weight on more recent data points, making it more responsive to recent changes while still smoothing out noise. This is particularly useful for metrics that require faster reaction to changes.
Statistical Significance
Statistical significance indicates whether an observed difference between variants in an experiment is likely to be due to random chance or represents a genuine effect. In advertising, it helps determine if differences in key metrics like CTR, conversion rate, or ROAS between ad variants or campaigns represent real performance differences rather than random fluctuations. This is crucial for making data-driven optimization decisions and avoiding false conclusions based on temporary variations.
Confidence Interval
A confidence interval provides a range of values that likely contains the true value of a metric, given a certain confidence level. In digital advertising, it helps marketers understand the reliability of their performance measurements and make more informed decisions about campaign optimization. Wider intervals suggest more uncertainty, while narrower intervals indicate more precise estimates of true performance.
Margin of Error
Margin of error represents the maximum expected difference between a sample-based estimate and the true population value, given a specific confidence level. In advertising, it helps quantify the reliability of metrics and determines required sample sizes for meaningful testing.
Sample Size
Sample size refers to the number of observations or data points collected in a sample, and is a crucial factor in determining the precision of statistical estimates. In advertising, it directly impacts the confidence, reliability, and validity of metrics such as conversion rates, click-through rates, and return on ad spend (ROAS). The larger the sample size, the more reliable the results, as smaller samples can lead to more variability and less confidence in the conclusions drawn from the data.
Variance
The variance is the average of the squared differences from the mean.
Population Mean
The population mean is the average value of a variable calculated using all members of a population, rather than just a sample. In digital advertising, it represents the true average value of metrics like conversion rate, CTR, or CPC across the entire audience or campaign. Unlike sample means which contain sampling error, the population mean is the actual parameter being estimated in statistical analysis, though it's often impossible to measure directly due to resource constraints.
Standard Deviation
Standard deviation quantifies the amount of variation in advertising metrics, helping marketers understand performance volatility and set appropriate monitoring thresholds. In digital advertising, it's crucial for identifying abnormal performance, setting realistic expectations, and creating robust optimization rules that account for natural performance fluctuations.
