ROI

$100 Ads Purchased = $100 Check from Affiliate Network

  • 0% ROI

    Votes: 381 87.4%

  • 100% ROI

    Votes: 55 12.6%
  • Total voters
    436
Let me clear it up. Even though the correct mathematical formula is:
ROI = (gain from investment - initial investment) / initial investment * 100 %, I will clear it up with words:

Obviously, there are two interpretations of return on investment here. Return as in whatever you get back from your investment (the OP's definition), and return as in the profit you get from it.

When you are to consider what the ROI is, there are some elements you need to consider:
  • The initial investment
  • Inflow from the investment - revenues, dividends etc
  • If there is equity left; also depending on whether one has sold the asset in which one first invested or not, and if one sold, what the sales price was
In the link the OP provides it is assumed that there is equity left.

The element which is missing explicitly in this discussion is the specification of the last element in the list above. For example, using the OP's example, when the intitially $100 invested is withdrawn from the AdWords account, there is no equity left in his AdWords account. Thus, there is no equity left in the object in which one initially invested the $100 in. The only parts left to consider are $100 which was the intial investment and the $100 which are revenues. 100 in and 100 out, equals to zero which is a 0 % ROI.

Another example is if one buys a $100 stock and receives a $100 dividend, and one can sell the stock again. Taking this into consideration, the ROI so far on the stock is 100% because we have three relevant elements to consider:

  • Initial investment of $100
  • Dividends $100
  • We can sell the stock - whatever the price is atm doesn't matter, since in my example the stock hasn't been sold again so we don't need to take the sales price into consideration, but we must consider that there is still equity!

Basically, the OP fails and the ROI in his example is 0%, not 100%.
 


knukk said:
Let me clear it up. Even though the correct mathematical formula is:
ROI = (gain from investment - initial investment) / initial investment * 100 %, I will clear it up with words:

Obviously, there are two interpretations of return on investment here. Return as in whatever you get back from your investment (the OP's definition), and return as in the profit you get from it.

When you are to consider what the ROI is, there are some elements you need to consider:
  • The initial investment
  • Inflow from the investment - revenues, dividends etc
  • If there is equity left; also depending on whether one has sold the asset in which one first invested or not, and if one sold, what the sales price was
In the link the OP provides it is assumed that there is equity left.

The element which is missing explicitly in this discussion is the specification of the last element in the list above. For example, using the OP's example, when the intitially $100 invested is withdrawn from the AdWords account, there is no equity left in his AdWords account. Thus, there is no equity left in the object in which one initially invested the $100 in. The only parts left to consider are $100 which was the intial investment and the $100 which are revenues. 100 in and 100 out, equals to zero which is a 0 % ROI.

Another example is if one buys a $100 stock and receives a $100 dividend, and one can sell the stock again. Taking this into consideration, the ROI so far on the stock is 100% because we have three relevant elements to consider:

  • Initial investment of $100
  • Dividends $100
  • We can sell the stock - whatever the price is atm doesn't matter, since in my example the stock hasn't been sold again so we don't need to take the sales price into consideration, but we must consider that there is still equity!

Basically, the OP fails and the ROI in his example is 0%, not 100%.
Click to expand...

I was going to post the same thing but his wikipedia link use case specifically leaves out initial investment in its "cash flow" discussion, ignoring whether there is equity left.

My point then is that's not appropriate here because there is no "cash flow" generated in his example. So he can't use that interpretation, and thus is completely wrong.
 
He's actually wrong even assuming the Wikipedia article fits.

Cash flow here does not include the return of invested capital.
Click to expand...

(from the Wiki)

What fucking planet do you have to be from to debate whether or not you have an ROI more than -0- before you have accounted for capital invested?

I love conversations like these. Even better are the guys who buy a dogshit turnkey site on Sitepoint for $75, spend 30 hours working on content and promotion, make $25 in AdSense commissions then brag about the 33% return on investment. That's a double fail.

Functional innumeracy is a big part of why so many people flame out and lose their asses trying to make money online.



Frank
 
dumbass.jpg
 
I'd love to see someone going into a VC/Bank/Angel/Shareholder/Press/M&A meeting and claiming that because they lost $10 in every $100 they achieved a 90% ROI.

The lolz would be large.
 
TVensor said:
Who the fuck cares. Make money then fuck bitches and feed em spaghetti-o's.
Click to expand...
I like your way of thinking.

barman said:
the entire cakes channel should kill itself
Click to expand...
I spent 4 days on it a few months ago. I think it is mostly people who do not make money talking about mindless bullshit.

@ROI, this is an awesome thread. No matter what someone tells you what their ROI is, the books and methodology can always be fudged. Cashflow rarely lies.
 
guerilla said:
Right, because that's what is important in life. :rolleyes:

Full marks for being honest about your superficiality.
Click to expand...

That's true. Make a lot of money and fuck a lot of beautiful babes. There is no higher purpose in life.

Well, there is higher purpose. You can change the world. Why? So they pick you as leader and you get rich and fuck babes.

If you look prophets, and kings in the past, what do they do. Yea they change the world. After that what? Get rich fuck babes.

I mean, can somebody tell me a single higher non metaphysical purpose in life?

I mean getting kids through college? Why? So they produce grandchildren. Hmm... Not higher but similar.

In humans trees of desire, at the very end, all they want is to fuck babes. Everything else is a mean to that end.
 
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Rage9 said:
Maybe we should start calling ROI, POI (Profit on Investment).

I see both camps thoughts on ROI.
Click to expand...

The advantage to see that ROI is 110% (for 10% profit) is that if you want to know how much money you make in 2 years, you simply multiply them.

Tadaaa.... ROI is 110%*110%=121%

Also profit is by definition

Assets*Turnoverratio = sales
sales * profit margin = profit.

So profitperyear=asset*turnoverratio*profitmargin

Okay, I am missing something here. Yea that's another issue.

If you buy donut for $1 and you sell it for $2. What is your profit margin? 50% or 100%?
 
teguh123 said:
The advantage to see that ROI is 110% (for 10% profit) is that if you want to know how much money you make in 2 years, you simply multiply them.

Tadaaa.... ROI is 110%*110%=121%

Also profit is by definition

Assets*Turnoverratio = sales
sales * profit margin = profit.

So profitperyear=asset*turnoverratio*profitmargin

Okay, I am missing something here. Yea that's another issue.

If you buy donut for $1 and you sell it for $2. What is your profit margin? 50% or 100%?
Click to expand...

I don't even know what the fuck your talking about. I'm saying there is debate over what ROI is. I think most of us express it as a percentage of profit made on our investment.

I'm saying it would be easier (and more logical) to just call it POI (Profit On Investment) as to not confuse with some other meaning or ROI. This will make it perfectly clear what you are talking about.
 
An investment refers to a stock of capital, and the return refers to a flow.

You cannot pay yourself back with your own stock, that is, a capital stock cannot come back to you as a flow. Take the example of a bond - the interest coupons are a flow of cash based on the face value of the bond (a stock). When a bond matures, you receive the face value of the bond (the stock) and have received a flow of cash payments - your ROI is the interest rate of the bond. (in the case of a normal bond, I'm not talking strip bonds or discount bonds).

So, you are wrong. The answer is 0%.

In fact - the term ROI is completely incorrect when talking about media buying. Buying media is not an investment - the traffic is not an asset. Buying traffic is an expense, in accounting terms it would be classified as an advertising expense or Cost-of-revenue expense.

You can analyze media buys and refer to 'ROI' as your gross profit margin expressed as a percent - but even then gross margin is based on Revenue. In this case, the revenue is $100 and the cost-of-revenue is $100, for a gross profit margin of $0 or 0%.
 
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