eCommerce glossary

All the terminology you’ll ever need, together in one place. We can even let you know when new terms are added.

Return on Investment (ROI)

Return on investment (ROI) is one of the most commonly used metrics. It can be applied to everything from investing money to the effectiveness of marketing campaigns. For marketing, ROI is exactly what it sounds like—it shows the profitability of marketing campaigns.

ROI is calculated as: (profit - cost) / cost x 100.

We multiply by 100 as ROI is usually expressed as a percentage. For example, if the total cost for a campaign is $1,000 dollars, and it generated $3,000, the ROI would be:

(3000 - 1000) / 1000 x 100 = 200%

That means for every dollar you spent; you got $2 back.

You could also have a negative ROI if your cost turns out to be higher than the profit.

ROI differs from ROAS (return on ad spend) in that it takes into account all costs associated with a campaign. ROAS is a measure of revenue, not profit, and only takes into account the direct spend on an ad. An ad campaign might have additional costs for things like software and design, etc.

Because of this difference, ROAS is better for assessing the effectiveness of ad campaigns, and ROI is better for looking to see if your marketing efforts are generating profit. You could have a marketing campaign with a positive ROAS but a negative ROI, thus losing your company money due to additional costs outside of the ad spend itself. Both ROI and ROAS should be used to assess and improve your marketing efforts, just in different ways.

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