What is Return on Investment (ROI)?

[0:00]What is return on investment? Return on investment is a measure of how profitable an investment has been. We also use the abbreviated term ROI. A high ROI means that an investment generates a good profit compared to its investment cost, i.e., compared to how much you initially invested. Investors commonly use ROI to evaluate the effectiveness of investments. It allows them to determine profits related to the amount of capital they invested. ROI is a cash flow metric that compares the timing and quantity of investment gains with the timing and quantity of costs. The Corporate Finance Institute says: "ROI is a financial ratio used to calculate the benefit an investor will receive in relation to their investment cost." So let's take a look at an example. Let's imagine that you buy a house for $70,000, and then spend $30,000 renovating it. One year later, you sell it for $200,000. Your ROI is 100%. You invested $100,000 in total and got $200,000 back. $200,000 is 100% more than $100,000. Marketing and ROI. Marketing professionals are forever calculating return on investment. Before launching a marketing campaign, they need to be sure that they will get back more money than they spend promoting a product or service. If the percentage return is high, they are more likely to go ahead with a campaign. Thank you for watching this brief video on return on investment.