ROI (Return on Investment) is a metric used to calculate the efficiency of various marketing channels to generate profit.
ROI = (Gains from Investment - Cost of Investment)/(Cost of Investment)
The higher the ROI, the more efficient the channel/campaign is in generating profits. ROI below 1 denotes the channel/campaign has generated lower revenue than it cost to run.
A shoe shop runs two campaigns, one with Facebook Static Ads costs 50$ and generates 200$ in revenue. The other, with Video Ads costs 100% and generates 300$ in revenue. The ROIs would be:
Static Ads ROI = (200-50)/50 = 3
Video Ads ROI = (300-100)/100 = 2
Static ROI > Video ROI
Limits of ROI
Using ROI may in some case be misleading. For example comparing two different products with various profit margins may in fact turn up invalid data. In such cases, comparing your actual ROAS (based on margins) may be more suitable. To read more about that, have a look at our article about ROAS.