Return on Investment (ROI) is a performance metric used to evaluate the efficiency or profitability of an investment. It measures how much return you get relative to the cost.
The Formula
ROI = ((Current Value - Cost) / Cost) × 100
If you invest $10,000 in a website and it generates $15,000 in additional revenue, your ROI is 50%.
ROI in Digital Projects
Website Redesign ROI
Measure:
- Conversion rate improvement
- Revenue increase
- Lead generation increase
- Support cost reduction
- Time savings
Software Development ROI
Measure:
- Process efficiency gains
- Labor cost reduction
- Error reduction
- Customer satisfaction
- Competitive advantage
Marketing Campaign ROI
Measure:
- Revenue attributed to campaign
- Cost per acquisition
- Customer lifetime value
Calculating Digital Project ROI
Direct Returns
- Increased sales
- New customers
- Higher prices
- More transactions
Indirect Returns
- Time savings
- Reduced errors
- Better data for decisions
- Improved brand perception
Cost Savings
- Automated manual processes
- Reduced support tickets
- Lower infrastructure costs
- Fewer errors to fix
Challenges with ROI
Attribution
What caused the improvement? The new website, or the marketing campaign that launched the same month?
Intangibles
How do you value improved brand perception or employee morale?
Time Horizon
Some investments take years to pay off. When do you measure?
Opportunity Cost
What if you'd invested that money elsewhere?
ROI vs. Other Metrics
- Payback Period: How long until you recover the investment
- NPV (Net Present Value): ROI accounting for time value of money
- IRR (Internal Rate of Return): The effective interest rate of an investment
Setting ROI Expectations
For digital projects:
- Website redesign: 100-300% ROI over 3 years is common
- Custom software: Varies wildly by use case
- Marketing automation: 50-200% first year