There is a lot of misguided talk about ROI lately and it will probably do more harm than good. Most of the efforts are well meaning, yet they enlighten more about the immaturity of the Digital Media industry than they do anything else.

The errors range from a misreading of the term to a lack of understanding about how advertising works to naïveté that manifests itself in suppliers believing everything that clients tell them.

I will try to dispel some of the confusion.

What is ROI?

ROI, for those who don’t already know, is a financial term and stands for “Return on Investment.” Although recent events have shown Financial Industry metrics to be found wanting as well, Wall Street types make a lot of money and so are assumed to be smarter than the rest of us. Therefore, it’s not surprising that marketing people want to emulate them.

However, if one looks at the way financial people use ROI, the error should become immediately apparent.ROI was never intended to be used for every, or even for most investments. Its main function is to evaluate businesses as whole or major investments such as an entire factory or business components that have a major effect on the bottom line.

Most investments, such as office furniture and equipment, employee training, etc. are not broken out separately. Even many high ticket items, ranging to specific machinery to multimillion dollar art in CEO offices, are not calculated. They are simply aggregated into larger investments.

Continues @ http://www.digitaltonto.com