ROI – Return on Investment
A general profitability metric: (net profit / investment cost) × 100. Different from ROAS — it includes all expenses.
In practice
ROAS can be 5 while ROI is negative. This happens when COGS, storage costs, shipping, and returns are high. ROI is the 'economic truth.'
Common misconception
Calculating ROI on advertising alone. True ROI includes: salaries, tools, packaging, returns, inventory loss.
How to fix it
Negative ROI? (1) check ROI by SKU — is one product dragging it down? (2) return costs, (3) fixed costs that can be cut.
Example
A travel accessories store: ROAS 4.2, but ROI was negative. One product (a tent) had a 34% return rate. Removing it improved overall ROI by 22%.
Priority
Calculate true ROI quarterly. All revenue minus all expenses.
Related terms
Keep learning. Metrics that touch the same area:
- Churn RateFinanceThe percentage of customers/subscribers who stopped buying or paying in a given period. High churn means every new customer just replaces an old one. Per Harvard research: cutting churn by 5% increases profit by 25-95%.
- Gross MarginFinance(Sale price - COGS) / sale price × 100. The basis for every pricing and advertising decision.
- AOV – Average Order ValueFinanceTotal revenue divided by number of orders. The biggest lever for increasing revenue without more advertising.
- LTV / CLV – Customer Lifetime ValueFinanceTotal expected profit from a customer over the entire relationship. A healthy LTV:CAC ratio is 3:1.
- COGS – Cost of Goods SoldFinanceThe direct cost of producing or acquiring products sold. Includes: product + import shipping + customs + packaging.
- Cash FlowFinanceThe movement of cash in the business. 'Profitable on paper, broke in the bank' — a common problem in growing stores.
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