Return on Investment DefinitionWhat is the best return on investment definition?
We’re often asked what the best ‘Return on Investment’ definition is.
Fortunately, there is only one factual definition for ‘Return on Investment.’ Basically, the formula is ‘returns in profit, divided by the investment times 100%.’ Period.
This formula gives us a number that represents the returns generated from a known investment and it is expressed as a percent. For marketing purposes, it is generally the incremental returns generated from a specific incremental marketing investment is important.
The best return on investment definition
The reason why there is no best return on investment definition is that there is only one definition. There aren’t alternative definitions that can be applied. The real issue behind the question, ‘What is the best return on investment definition’ concerns the challenges in the determination of both the returns and the investments.
Return on Investment Definition: Investment
Typically the investment level is the easiest to calculate because those numbers are known and can be determined from actual or expected expenditures. There are receipts and invoices that directly apply to these investments. There are challenges in allocating fixed costs for example or for creative development costs that are used across multiple media channels.
Return on Investment Definition: Returns
Returns, especially when thinking of the marketing return on investment definition, are much more difficult to determine. Sometimes there are many different activities that make the determination of the returns that tie specifically to a particular investment. It is the decomposition of these returns that causes the challenge.
A second challenge in determining the returns is to calculate the time cutoff when the estimation of the returns should be made. For example, should the returns after 12 months be included or excluded? In most marketing cases, only the first 12 months are included, unless the products or services being sold have a long sales cycle extending past one year.
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