What is an ROI or Return on Investment?

Answer:
In Business terms everything is centered around ROI's

or the ability to produce health ROI's. A ROI is simply a return on investment. This can deal with realized returns from an advertising campaign or even returns realized from a salary employee. I consider ROI profits minus any taxes.

Sure it's a broad term but if you can effectively calculate ROI then your business will thrive. ROI is newly used on the Internet for Online Advertising campaigns. Measuring ROI on the Internet is easy and more effective than other mediums such as TV or Radio.

For TV and Radio an advertising campaign needs a unique identifier. A special phone number or address is used to measure the effectiveness of the campaign. If you sell $50 widgets and XYZ TV station wants to sell you a spot for $1000 then you know that your return must be at least $1000 to break even. More specifically, you need to sell 20 widgets. This is business, and even though you really like XYZ TV Station you still need to turn a profit to live. So you run the campaign and sell 100 widgets through your unique phone line dedicated to this specific TV sport. You now know that this specific TV Spot produces a $4000 ROI or your return was $5000 on a $1000 investment. Another way to look at it is with a percentage.

So how do you measure ROI as a ratio or percentage? It's simple, on a $1000 investment if you sold $5000 worth of widgets then you have a 400% ROI. A 400% ROI is something we all dream of but more realistically if you were to make $500 on a $1000 investment then your ROI would be 50%. Depending on other factors such as time value of money, opportunity costs and taxes a 50% ROI may not be attractive. Each business model is different therefore everyone's idea of a good ROI is different.

Remember, the ROI method above doesn't include certain financial obligations such as taxes.