Question 1

What is ROI?

Accepted Answer

Return on Investment (ROI) measures the profitability of an investment relative to its cost. Formula: ROI = (Net Profit / Cost of Investment) × 100. A 100% ROI means you doubled your money. A -25% ROI means you lost 25% of it.

Question 2

What is a good ROI?

Accepted Answer

It depends on the asset and time period. S&P 500 historically returns ~10% annually. Real estate: 8-12% annually. Marketing campaigns: target 200-500% (3-5× ROAS). For a single investment, compare to your alternative uses of that capital.

Question 3

What is annualized ROI?

Accepted Answer

Annualized ROI (CAGR) normalizes returns to a per-year basis so you can compare investments held for different periods. A 50% return over 5 years = ~8.4% annualized — calculated as (1 + ROI/100)^(1/years) - 1.

Question 4

What is ROAS?

Accepted Answer

Return on Ad Spend (ROAS) = Revenue / Ad Spend. A 4× ROAS means for every $1 spent on ads, you earned $4 in revenue. But ROAS ≠ ROI — you still need to factor in COGS and other costs to know if you actually profited.

Question 5

What is Rule of 72?

Accepted Answer

The Rule of 72 estimates how many years it takes to double your money: 72 / annual ROI %. At 8% annual ROI, your investment doubles in ~9 years. At 12%, it doubles in ~6 years. Quick mental math for compounding.

Question 6

What is cap rate in real estate?

Accepted Answer

Cap Rate (Capitalization Rate) = Net Operating Income / Property Value × 100. It measures the unlevered return on a real estate investment. A 6% cap rate means you earn 6% of the property value annually before financing. Higher cap rates usually mean higher risk.

Question 7

What is cash-on-cash return?

Accepted Answer

Cash-on-cash = Annual Cash Flow / Total Cash Invested × 100. Unlike cap rate, it accounts for financing. A property with $2,000/month NOI bought with $100,000 cash down has a 24% cash-on-cash return. Industry benchmark: 8-12% is considered excellent.

Question 8

How do I calculate marketing ROI?

Accepted Answer

Marketing ROI = (Gross Profit from Campaign − Marketing Costs) / Marketing Costs × 100. IMPORTANT: use gross profit, not revenue. A $10,000 campaign that generated $40,000 in revenue with 50% margins earned $20,000 gross profit, giving 100% ROI ($10K profit on $10K spend).

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