ROI: definition
Return on investment: what an action generates relative to what it costs, used to judge whether a channel or spend is worth it.
Definition
ROI (Return On Investment) measures the efficiency of a spend: the gain it generates divided by its cost. In acquisition, it's used to compare channels against each other and decide where to put money back. It only makes sense over a consistent period and when including all costs, including human time, which is often forgotten.
How to calculate it
ROI = (gain generated - cost) / cost
Why it matters
ROI is the arbiter when you have to choose where to put a limited budget: it tells you which of your channels turns one euro into the most. Calculating it without counting time spent gives a flattering but false ROI, which pushes you toward bad decisions.
When to use it
You calculate it per channel and per campaign, over a period long enough to capture the effects. Concretely, in SaaS where revenue is recurring, you reason less in terms of one-off ROI and more in terms of the LTV to CAC ratio, which factors in customer value over time.
Example
A campaign that costs 1,000 euros and generates 3,000 euros in attributable revenue shows a 200% ROI.
Common mistakes
- Forgetting to include the cost of human time.
- Measuring it over too short a period.
- Preferring it over the LTV/CAC pair for recurring revenue.
Don't confuse it with
- cac: ROI measures the gain-to-cost ratio of an action; CAC only measures the cost of acquiring a customer, without the revenue they bring in.
Related terms
Articles that use this term
Frequently asked questions
- Is ROI enough to run a SaaS?
- Not on its own: since revenue is recurring, it's often better to rely on the LTV/CAC pair and payback period, which account for customer value over time.