ROI

ROI, return on investment, expresses profit as a percentage of the money invested. Divide net gain by the amount invested: put in 10,000 and make 2,000, and ROI is 20%.

Its strength is comparing investments of different sizes. A small advertising spend and a large equipment purchase can be lined up directly, which is why ROI is used so heavily in marketing and business decisions.

Its weakness is that it ignores time. A 20% ROI could be one year or ten, and the figure looks identical. To account for duration you need CAGR, the annualised growth rate, alongside it.

Hidden costs also drop out easily. Your own hours, the opportunity cost, and ongoing management effort rarely enter the calculation — which is how a project with a strong ROI on paper leaves nothing behind in practice. So when reading an ROI, check what was counted as cost first. The same project can show very different numbers depending on whether labour was included.