How is ROI calculated using the first method?

• A. Sales growth / Marketing costs
• B. (Sales growth - Marketing costs) / Marketing costs
• C. Marketing costs - Sales growth / Marketing costs
• D. (Sales growth + Marketing costs) / Marketing costs

Answer: (B)

ROI measures the return earned on an investment, here treating marketing spend as the investment and the net gain from sales growth as the return. Using the first method, you take the additional sales generated by the campaign, subtract the marketing costs to get the net profit from the campaign, and then divide that net profit by the marketing costs to express the return as a ratio. For example, if a campaign adds $50,000 in sales and costs $20,000 to run, the net gain is $30,000 and ROI is $30,000 / $20,000 = 1.5 (or 150%). This approach shows how efficiently the marketing spend converts into profit. The other formulas either ignore costs or mix terms in ways that don’t reflect net profit, so they don’t measure the true return on the investment.