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Measurement and metrics

ROI (return on investment)

Also called return on investment, investment return.

Short answer

ROI (return on investment) is the return on an investment: earnings minus costs, divided by the costs and expressed as a percentage. An ROI of 60 % means that every krone invested came back with 60 øre in profit on top.

Definition of ROI (return on investment).

ROI shows whether an effort pays for itself. The formula subtracts all costs from the earnings and puts the result in relation to the costs. A positive ROI is profit, 0 % is break-even, and −100 % means the whole investment is lost. Because ROI is calculated on profit and not on revenue, it is the figure that decides profitability.

For an affiliate, the investment consists of ad spend, tools, hosting, bought content – and in reality their own time as well. The earnings are the commission earned. For a store, the investment is commission, network fee and administration, while the return should be calculated as the contribution margin from the referred sales, not as revenue.

ROI in affiliate channels must be measured over a fair time horizon. SEO content costs a lot at the start and earns for years, and recurring commission grows month by month. Measure ROI after 30 days and both are systematically underestimated. Stores therefore supplement ROI with LTV and CAC: the lifetime value of a referred customer held up against the acquisition cost shows the return over the whole customer relationship – not just on the first order.

How it is calculated

ROI = (earnings − costs) ÷ costs × 100

earnings
commission earned for an affiliate – contribution margin from referred sales for a store
costs
all expenses for the effort: ads, tools, fees, content

Example

Commission earned
DKK 8,000
Costs
DKK 5,000
ROI
60 %

The effort returned 60 øre in profit per krone invested – the figure can be compared directly with other ways of using the same money and hours.

ROI vs. ROAS

AspectROIROAS
Base figureprofitrevenue
Can be negativeyes – down to −100 %no, the lowest value is 0
Requiresthe full cost pictureonly ad spend and revenue
Best fordecisions on profitability and prioritiesongoing bid management and budget shifts

ROAS tells you whether the ads drive revenue – ROI tells you whether you keep any money in the end.

How it goes wrong

  • 01

    Revenue used as earnings

    Put revenue into the ROI formula and you are really calculating a variant of ROAS. ROI requires profit figures – contribution margin for stores, commission minus all expenses for affiliates.

  • 02

    Your own time counted as zero

    100 hours of content production is not free just because no invoice arrived. Put an hourly rate on the work – otherwise the spreadsheet shows a profit on projects that in reality pay below minimum wage.

  • 03

    The horizon is too short

    Recurring commission and SEO traffic deliver most of the return after the first months. An ROI measured too early makes profitable bets look like losses.

Frequently asked questions

How do you calculate ROI in affiliate marketing?

Subtract all costs from the earnings and divide by the costs. If you earn DKK 8,000 in commission and have DKK 5,000 in expenses, ROI is (8,000 − 5,000) ÷ 5,000 = 60 %.

What is the difference between ROI and ROAS?

ROI is calculated on profit after all costs and can be negative. ROAS only counts revenue against ad spend. A campaign can have a ROAS of 3 and still a negative ROI if the margin is low and other costs are high.

What is a good ROI?

There is no fixed threshold. An ROI above 0 % is profit, but the figure has to beat the alternative – what the same money and hours could have earned elsewhere. So compare ROI across your own campaigns rather than against an industry norm.

Can ROI be negative?

Yes. If the costs exceed the earnings, ROI is negative, and −100 % means the whole investment is lost. A negative ROI in a start-up phase can be acceptable if the return comes later, for example from recurring commission or SEO traffic.

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