2 MINUTE READ | February 21, 2015
ROI: It's Just a Number
I tend to make big deals out of small things. Especially when I know I’m right. You don’t earn the nickname “Sheldon” without furiously arguing over minor details. One of the smallest things in the reporting world that drives me straight up a wall is seeing a dollar sign in front of ROI. It’s unitless people. I can recall practically yelling at my new boss about it only weeks into a previous job. In true Sheldon fashion, I will now present that same unnecessarily long argument to prove my point.
Let’s start with a simple example everyone over the age of 16 can relate to: MPH. MPH stands for miles per hour. How in the world did anyone get the idea to call the speed of a car “miles per hour”? It’s just arithmetic. Speed is simply distance over time. Units are calculated the same way as the metric itself. So for speed, we have:
Units for Speed =
= Miles Per Hour
With me so far? Great.
Back to ROI. ROI, for the most part, is revenue divided by cost. Both revenue and cost are measured in dollars. Let’s take the same approach we used to get units for speed and apply it to ROI:
Units for ROI =
Think back to elementary school math. What happens when something gets divided by itself? THEY CANCEL! We’re left with no units for ROI.
For the love of all that is mathematical, stop putting dollar signs in front of ROI. It’s just a number.
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Posted by Preston Smith
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