ROI: advantages and disadvantages

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The ROI ratio is easy to calculate and will help a business owner make the right decision by comparing the risk factors and opportunities of different projects.

Why you should use Marketing ROI when evaluating your investment performance:

It allows you to quickly compare data within one or several companies;
calculations make it possible to conduct an express assessment of almost any business sector;
It is easy to analyze “closed systems” that allow you to plug specific numbers into the ROI formula, without the risks and pitfalls that come with complex calculations.
Despite the ease of calculation, many experts do not recommend afghanistan email list using the indicator as a primary assessment. The fact is that it shows a clear result only in ideal "vacuum" conditions - when the numbers are easily substituted and nothing influences from the outside, and the calculations are made in relation to a clear period of time.

But this is not always the case. For example, how to evaluate the return on investment in training courses for staff? Perhaps the efficiency of employees will improve – and at the same time, suppliers will raise rates, the client base will shrink, a competitor will switch to a more modern advertising platform, which makes a pure calculation of the efficiency of one indicator ineffective.

Other disadvantages of ROI:

The time value of money is not taken into account.
Depends on the accounting principles adopted by the company.
Not suitable for in-depth analysis. To objectively assess profitability, it is necessary to calculate several indicators.
The return on investment ratio is determined as a percentage, so it does not give an idea of ​​the real increase in profit. Example: there are two projects, in the first we invested 2000 USD and got an ROI of 10%, in the second – 200 USD and an ROI of 30%. The ratio lets us know that the second option is more profitable, because 30% is more than 10%. But in fact, the income from the first was 2000*10% = 200 USD, from the second – 200*30% = 60 USD. We understand that in numbers the first project is more profitable. But at the same time, we can consider the forecast for the profitability of the second project if we invest more money in it.