# What is ROI – Return on Investment?

What is ROI – Return on Investment? A general profitability metric: (net profit / investment cost) × 100. Different from ROAS — it includes all expenses.

## How it works 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.'

## Related metrics

- ROAS — ROAS is a subset of ROI
- COGS — high COGS lowers ROI
- Churn Rate — high churn hurts LTV and lowers ROI
- Gross Margin — ROI and gross margin move together

## 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.

## Real-world 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%.

## Where to start

Calculate true ROI quarterly. All revenue minus all expenses.

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Category: Finance · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/roi-return-on-investment