ROI (Return on Investment)
The profit generated relative to the amount invested in marketing.
What is ROI (Return on Investment)?
Return on Investment (ROI) measures the profitability of your marketing investment. It accounts for all costs (not just ad spend) and measures actual profit, not just revenue.
Formula: ROI = (Revenue - Total Investment) ÷ Total Investment × 100. If you spend $10,000 and generate $40,000 in profit, your ROI is 300%.
ROI differs from ROAS: ROAS measures revenue per ad dollar, while ROI measures profit after all costs (product costs, overheads, ad spend, agency fees, etc.).
Positive ROI means you're making money; negative ROI means you're losing money. Target ROI varies by business - typically aim for minimum 200-300% ROI on marketing spend.
ROI for New Zealand Businesses
NZ businesses should calculate true ROI including all costs: ad spend, agency/freelancer fees, creative production, software tools, and time invested.
Account for customer lifetime value when calculating ROI - don't just measure first purchase. A "negative" initial ROI might be positive when including repeat purchases.
Set ROI expectations based on your industry: e-commerce might target 300% ROI, while service businesses with high margins might accept 200% ROI.
NZ Business Examples
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A Christchurch retailer invests $5,000 (ads + fees), generates $25,000 revenue with $10,000 profit, achieving 100% ROI -
A Wellington consulting firm spends $8,000 on marketing, signs $60,000 in contracts with $48,000 profit (80% margin), hitting 500% ROI -
An Auckland e-commerce store invests $15,000, generates $75,000 revenue with $15,000 profit (after COGS), achieving 0% ROI (break-even - needs improvement)
Real-World Industry Examples
Service Business
A landscaping company invests $3,000 monthly in ads and generates $25,000 in work
After labor and materials ($12,000), profit is $13,000, ROI = 333% - sustainable and scalable
E-commerce
An online store spends $20,000 on ads, generates $100,000 revenue
With $50,000 COGS and $10,000 overhead, profit is $40,000, ROI = 100% - good but room for optimization
SaaS
A software company invests $50,000 in customer acquisition
Acquires 200 customers × $1,000 annual value = $200,000 ARR with 90% margins, ROI = 260% first year, 800%+ over 3 years
Related Terms
Frequently Asked Questions
What's the difference between ROI and ROAS?
ROAS measures revenue per ad dollar (e.g., 5:1 ROAS = $5 revenue per $1 ad spend). ROI measures profit after ALL costs including COGS, overhead, etc. ROI gives true profitability picture.
What is a good ROI for marketing?
Target minimum 200-300% ROI (i.e., $2-3 profit for every $1 invested). However, "good" depends on your goals, margins, and growth stage. Early-stage businesses might accept lower ROI for market share.
How can I improve my marketing ROI?
Reduce costs (optimize targeting, improve Quality Score), increase revenue (raise prices, upsell), improve efficiency (better conversion rates, qualified leads), and extend customer lifetime (retention, repeat purchases).
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