Which statement about ROI calculation is incorrect?

• A. ROI is calculated by subtracting marketing costs from total sales growth, then dividing by marketing costs.
• B. ROI can be interpreted as the profit from marketing relative to its cost.
• C. ROI greater than 1 is favorable.
• D. ROI calculated as total sales growth divided by marketing costs.

Answer: (D)

ROI measures profitability of an investment by comparing the net gain to the cost of the investment, so in marketing you’re looking at the profit generated relative to what was spent. The statement that defines ROI as total sales growth divided by marketing costs misses a crucial step: you must subtract the marketing costs (and other relevant costs) from the gains to get net profit before dividing by the cost. Without that subtraction, you’re comparing revenue to cost rather than net profit to cost, which inflates the apparent return. For example, if sales grow by 20,000 and marketing costs are 5,000, the net gain is 15,000, giving ROI of 15,000/5,000 = 3 (300%). Using 20,000/5,000 would yield 4 (400%) but ignores the expense, so it isn’t true ROI. The other statements align with the standard understanding that ROI reflects profit relative to cost, and that ROI greater than 1 is favorable.