| IMD |
| Page: Definition ROI |
Return of Investment (ROI):
A percentage figure which tells you how much of your investment to get a product created, advertised, sold and/or delivered returns to you by selling it. In other words, how much profit you make compared to the money invested.
One
example to keep it simple: You advertise a product as an
affiliate
via Google
AdWords. You have
to pay 50 cents for 1 click and after a while you find
out that you need 30 clicks to make 1 sale. Your
affiliate
commission
for 1 sale is $45.
This means your investment is 30 x .50 = $15. Your profit
is $45. Your ROI in this case is 200% ($45 profit - $15
investment = $30 net profit, 2x more than your initial
investment).
In general: If you double your invested money through a sale your ROI is 100%.
On any ROI > 0 your investment is profitable and you are earning money.
On any ROI < 0 you are losing money.
ROI = 0 means you are earning just as much as you are investing.
ROI = - 100% means you have lost all your invested money and it can’t be recovered.
[ Investment comes from Latin in- and vestire = to dress, to clothe; the meaning of “using money to make a profit” has to with the idea of changing the form of one’s capital by investing it]
