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Return minus cost, divided by cost
ROI, return on investment, puts every expense in the same light: what came back for each euro? The formula is simple: (return minus cost) divided by cost, times 100. Invest 10,000 euros, get 15,000 back, and your profit is 5,000 euros and your ROI 50 percent. A negative ROI means you got back less than you put in.
The number works for anything that costs money and should return some: a new website, a campaign, a machine, a piece of software or an AI tool. That is why you can set them side by side, even when they have nothing else in common.
A formula from the chemical industry
In 1914 Donaldson Brown, then a finance man at the American chemical company DuPont, devised a formula to compare the performance of divisions: he combined profit, working capital and investment into one number and called it return on investment. It became known as the DuPont method and spread through business schools and companies worldwide. The principle has not changed since; what changed is everything we count as a return.
Return on everything, or revenue on ads
In marketing you will more often hear ROAS: revenue per euro of advertising. ROAS looks at revenue, ROI at profit. A campaign with a ROAS of 4 looks fine, but at a 20 percent margin it loses money. ROI subtracts every cost first: purchasing, management, your team's time. So ROI answers "was it worth it?", and ROAS is the quicker number to compare campaigns.
An integration over three years
- 6 hours a week saved, 46 weeks
- Assumed labour cost 40 euros an hour
- Build 8,000 euros, upkeep 600 euros a year
What the integration returns, added up per year (worked example)
After year 111,040 euros
Cost so far 8,600 euros. ROI 28 percent, paid back after just over 9 months.
After year 222,080 euros
Cost so far 9,200 euros. ROI 140 percent.
After year 333,120 euros
Cost so far 9,800 euros. ROI 238 percent.
Dashed line: what the integration cost in total after three years, 9,800 euros
ROI is (return minus cost) divided by cost. The longer something lasts, the more a one-off investment pays back.
An integration that pays back in nine months
Take an accounting firm in Rotterdam that retypes client invoices from its inbox into its accounting package every week. Together that costs 6 hours a week. An integration that reads invoices in automatically costs 8,000 euros to build and 600 euros a year to maintain. At an assumed labour cost of 40 euros an hour, the firm saves 6 times 46 working weeks times 40 euros: 11,040 euros a year.
| After | Return added up | Cost added up | ROI |
|---|---|---|---|
| 1 year | 11,040 euros | 8,600 euros | 28 percent |
| 2 years | 22,080 euros | 9,200 euros | 140 percent |
| 3 years | 33,120 euros | 9,800 euros | 238 percent |
The payback period, the time until the investment is back, is just over nine months. What an AI tool costs per month in use, the AI cost calculator works out.
Three numbers for one decision
| Number | Question it answers | For the integration above |
|---|---|---|
| Payback period | When do I have my money back? | Just over nine months |
| ROI after three years | How much came back in total per euro? | 238 percent |
| Average ROI per year | Is this better than something else with the same money? | About 79 percent a year (238 divided by 3) |
Always compare two investments over the same period. A website at 200 percent ROI after one year and an integration at 238 percent after three are not directly comparable: the website wins per year, the integration keeps running longer.
What a website returns, in margin
For marketing, count the profit from new customers, not the revenue. A website that brings 4 requests a month, of which 2 become customers with a 1,200 euro margin each, brings 28,800 euros of margin a year. If the site costs 9,000 euros and upkeep 600 euros a year, the ROI after year one is 200 percent. The hard part is measuring: without counting requests per source, you do not know which customer came from the site. Work out your margin and marketing budget with our tools; what developers charge per hour is in web developer hourly rates.
Build or buy: let the sum decide
Buying software means a monthly subscription that never ends; building means a larger cost up front and lower costs after. ROI over three to five years is the fair way to compare the two. A subscription of 300 euros a month costs 18,000 euros over five years, and you still do not own it. In build vs buy software we set both side by side.
Where the sum goes wrong
Counting only the build cost. Software, a site and a campaign have running costs too: hosting, licences, management, your own time.
Too short a period. Measure the ROI of SEO after a month and you see a loss. Measure software after a year and you miss the years after.
Forgetting soft returns. Fewer mistakes, faster replies to customers, an employee who stays because the dull work is gone. Hard to put in euros; write them next to the number in words.
The questions that come back with every calculation
How do you calculate ROI?
Subtract the cost from the return, divide by the cost and multiply by 100. If something costs 4,000 euros and returns 6,000, the ROI is (6,000 minus 4,000) divided by 4,000: 50 percent.
What is a good ROI?
Any positive ROI means you got back more than you put in, but weigh the period and the risk. 30 percent in a year is strong; 30 percent after five years is thin. Compare with what the same money would earn elsewhere.
What is the difference between ROI and payback period?
ROI says how much you get back per euro, the payback period how long until the investment is back. A project with a short payback can have a lower ROI than one that starts slower but lasts longer.
How do I measure marketing ROI?
Count requests and customers per channel and work with the margin of those customers, not revenue. Set all costs against it: ads, management, content and your own time. Over several months, as marketing works with a delay.