ROI (Return on Investment).

ROI is a profitability metric. An ROI of 100 per cent means that an investment has brought back its costs once more as profit. An ROI of 0 per cent means the costs are exactly covered; a negative ROI means money was lost. The metric is simple and therefore popular — and for exactly that reason prone to being calculated with flattering assumptions.

In marketing, ROI is often confused with ROAS. ROAS divides revenue by advertising costs and ignores all other costs. A ROAS of 4 sounds good but can mean a negative ROI if the margin is low and management, production and shipping are added on top. ROI works with profit instead of revenue, and with all costs instead of just the ad budget.

The difficulty lies in attribution. Which profit can really be traced back to a measure? A new website works over years, across many channels and together with other measures. Some of the jobs would have come anyway. Serious ROI calculations therefore work with cautious assumptions, make them visible and, where possible, compare with a period or region without the measure.

For software projects, ROI is often calculated from time saved: how many hours a week does a tool save, what does an hour cost, and when has the investment paid for itself? This calculation is often more robust than revenue forecasts, because the current effort can be measured beforehand. It should be complemented by the total cost of ownership, which includes operation and maintenance over the years.