ROI
What is the ROI?
ROI is an acronym that stands for “return on investment”. In the FMCG world, it is a fundamental KPI that represents the value generated by marketing activities or business investments such as promotion, the introduction of innovation or advertising campaigns.
Why is ROI important?
The ROI is used to assess the value generated by additional sales for every euro invested in an action. A positive return on investment means that the project is profitable. Otherwise, it is not profitable and causes the company to lose money. In the latter case, it will be necessary to assess whether other objectives that are not purely economic (e.g. increase in market share, sales volume, etc.) were achieved or not in order to decide on the relevance of the action.
How to calculate the ROI?
There are several ways to calculate the return on investment. The most common one being:
ROI = (Profit – Investment) / Investment.
For example: if you invest €50,000 for an advertising campaign and get €100,000 in profits, the return on investment will be 100%. For every euro invested in the campaign, a return of €1 is generated.
Another example: if you invest€ 50,000 in a promotional price reduction campaign get a profit of € 45,000, the return on investment will be -10%, despite the fact that there may have been an increase in units sold.
There are also other formulas to calculate the ROI such as:
ROI = Profit / Investment
If the result is greater than 1, the ROI is positive, if it is lower, the ROI is negative.
