What is return on investment (ROI)?
Return on investment is the gain from an investment divided by its cost, usually shown as a percentage. A 150 percent ROI means the investment produced a gain of one and a half times its cost. ROI is simple and widely used, but it ignores timing: the same return earned in one year or in five looks identical unless you annualize it.
Why it matters to a revenue leader
Revenue leaders ask for investment all the time: new sellers, tools, training, marketing programs. A request framed as ROI, with the gain measured in gross profit, gets a better hearing from the CFO than one framed as activity. Ask vendors and internal teams for the assumptions behind any ROI claim, since many rest on adoption rates that deserve checking. Pairing ROI with payback period gives a fuller picture.
How to calculate it
ROI = (gain from the investment minus its cost) divided by its cost. A common mistake is measuring the gain in revenue instead of gross profit, which overstates the return.
Example
Fictitious numbersA fire protection company spends $60,000 on a quoting tool and training. Over a year, better quoting adds $500,000 of revenue at 30 percent gross margin, or $150,000 of gross profit. ROI is ($150,000 minus $60,000) divided by $60,000, or 150 percent.
"What gross profit, by what date, would prove this investment worked?"