<http://schema.org/articleBody>
"Return on investment is a pretty fundamental goal of any business endeavor. Yet the term didn't really gain much currency until the mid-1960s. As this Google Ngram chart shows, since then, the term \"ROI\" has greatly increased in popularity.\n\nWhy? It's clear that the idea of getting a return on one's investment was always been a topic of conversation among the business-minded. But it used to be called something else: Return on Capital. In fact, this Ngram shows that ROI took off just as ROC was waning. Meanwhile, a more down-to-earth description of ROI, \"bang for your buck,\" appeared to rise in popularity with ROI.\nIt's unclear why the change in language took effect. However, it's easy to see why ROI is viewed as important. After all, if you're plowing money into a business and have nothing to show for it, you're not going to be in business for long. Fortunately, there's a simple formula for determining if that's the case: Just take the gain from your investment and subtract the cost of your investment. Then divide that by the cost of your investment. For instance, if you spent $5 to make $7, then your profit is $2, which is divided by 5 to give you an ROI of $0.40 or 40%.\nJohn Longo, a clinical associate professor at Rutgers Business School in Newark and New Brunswick in New Jersey, says an ROI of 40% would be very good. He says the benchmark generally is 10%, which is the historic rate of return of the stock market. However, \"Use simple intuition. If you're paying 8% interest to the bank, you have to be making more than 8%. It has to be greater than your cost of capital.\"\nWhile the process of determining ROI appears straightforward, there can be complications. It is notoriously difficult, for instance, to track the ROI of an ad campaign. A famous quote often attributed to 19th century department store mogul John Wanamaker:\n\"Half the money I spend on advertising is wasted; the trouble is I don't know which half.\" This was especially true for analog forms of advertising, like radio. \"Some [listeners] will have an interest and some won't,\" Longo says, noting that he often hears political ads in New Jersey for candidates running in Connecticut for whom he can't cast a vote.\nDigital media makes accountability somewhat easier, but it can still be tricky. As Facebook likes to argue, just because no one has clicked on a banner ad, doesn't mean the ad didn't have a positive influence on consumer behavior.\nAnother complication to ROI is that it's often calculated in the future. A big project, like a movie, assumes an ROI when in reality no one has any idea what it will earn. In addition, there's often disagreement as to what constitutes an investment. Is it merely the money that was laid out of this particular project or should everything related to the business, including the opportunity costs involved with employees working on this rather than something else, part of the formula?\nFinally, muddying the waters further is the ultimate goal of your endeavor. You may, for instance, sell a product at a loss to eliminate the competition, in which case you'd have a negative ROI for that particular project, even though it might help your business down the road. Startups often run business at a loss for years as they try to build a large audience and then, only later, consider how to monetize that audience. (Facebook is a good example.)\nDespite such shortcomings, ROI is still seen as the benchmark to measure performance. Even though the numbers can be manipulated, it justifies expenses and thus fuels growth. Simply put, without bang for your buck, your business will fizzle.\nImage courtesy of iStockphoto, Samxmeg"^^<http://www.w3.org/2001/XMLSchema#string>
<http://mashable.com/2013/04/27/roi-definition/?amp>