ROI — Essence and Formula for Calculating Profitability

What is ROI?

ROI (Return on Investment) is a financial metric that measures the efficiency of investments. In mobile development, ROI is used to evaluate advertising campaigns, find product-market fit, and compare investment directions. The metric is universal and understandable to any business partner: investor, CEO, accountant.

ROI is expressed as a percentage. ROI = 100% means revenue doubled the costs. ROI = 0% is the break-even point. Negative ROI means the investment did not pay off. In mobile projects, ROI is rarely positive in the first 3–6 months: development and marketing tests require initial investment.

According to Deloitte (2025), the median ROI of mobile startups at seed stage is −40% (companies spend more than they earn). By Series A, ROI reaches 0–50%, and at the growth stage it reaches 150–300%. ROI above 200% is considered outstanding — such projects attract the attention of venture funds.

Why ROI is Needed in Mobile Projects

ROI is the language of business. A product manager justifies the development of a new feature by its potential ROI. A marketer proves campaign effectiveness through ROMI. A CEO makes decisions about raising investments based on projected ROI. Without this metric, all decisions are made intuitively — expensive and risky.

A simple example: developing a push funnel cost $20,000 and generated an additional $80,000 in revenue over 6 months. ROI = (80,000 − 20,000) / 20,000 × 100% = 300%. The decision to invest in the next feature is made based on this calculation.

ROI vs Profit

ROI is a relative metric (percentages), Profit is absolute (dollars). ROI allows comparison of the efficiency of projects of different scales. Investing $100 with ROI 500% (profit $500) is less profitable in absolute terms than investing $1 million with ROI 20% (profit $200,000). Both metrics are needed for a complete picture.

How to Calculate ROI

The basic ROI formula is simple and does not require complex tools. You only need to know two values: the amount of investment and the revenue generated. The formula is the same for any type of investment — advertising, development, equipment, hiring.

data class ROICalculation(
    private val investment: Double,
    private val revenue: Double
) {
    val profit: Double
        get() = revenue - investment

    val roiPercentage: Double
        get() = roundToTwoDecimals(
            ((revenue - investment) / investment) * 100
        )

    val isProfitable: Boolean
        get() = roiPercentage > 0
}

The ROICalculation class encapsulates the calculation logic. profit is the absolute profit. roiPercentage is the relative efficiency as a percentage. isProfitable is a boolean flag for quick checking. The constructor takes investment and revenue as Double — sufficient for most cases. For currency calculations, use BigDecimal.

ROI for a subscription product: a subscription costs $10 per month. CAC = $30. After 3 months, revenue per user = $30 — ROI = 0%. After 6 months, revenue = $60 — ROI = 100%. After 12 months, revenue = $120 — ROI = 300%. In a subscription model, ROI is always delayed — the first months are negative or zero.

ROI in Marketing Campaigns

ROI of advertising campaigns is the most common use of the metric in mobile development. Every dollar spent on UA must bring back more than a dollar. Marketing ROI is calculated separately for each channel, campaign, and creative group.

The formula for marketing does not differ from the general one. Investment = campaign costs (CPI × installs + overhead). Revenue = income from acquired users over a selected period (usually 7, 30, or 90 days). For subscription models, ROI is calculated on a 12-month horizon.

According to AppsFlyer (2025), the average ROI of ad campaigns on iOS is 140% on a 30-day window, on Android — 120%. Apple Search Ads shows ROI of 180–220% due to the high purchasing power of the audience. Google Ads — 100–130%. TikTok — 90–110%.

An important rule: ROI is calculated on a cohort, not on all traffic. A cohort of users who installed the app on Monday may have an ROI of 150%, while on Friday — 80%. The reason is different user behavior on different days of the week. Averaging without cohorts gives a misleading picture and leads to wrong decisions.

Daily / Weekly / Monthly ROI

ROI is not static. Day-7 ROI — how much returned in 7 days. Day-30 ROI — a more accurate picture. For subscription products, Day-90 ROI is the minimum horizon for evaluation. The longer the horizon, the more accurate the assessment, but the later the decision is made.

Difference Between ROI and ROMI and ROAS

ROI, ROMI, and ROAS are three metrics that are often confused. Each answers its own question. ROI — return on all investments. ROMI (Return on Marketing Investment) — return only on marketing investments. ROAS (Return on Ad Spend) — return on a specific advertising campaign.

ROMI = ((Marketing Revenue − Marketing Costs) / Marketing Costs) × 100%. ROMI excludes development, server, and support costs. It is a pure marketing metric. ROI includes all costs — from developer salaries to server rental.

ROAS = Ad Revenue / Ad Spend. ROAS = 3.0 means that for every dollar of advertising, $3 of revenue was generated. ROAS is an operational metric for real-time campaign optimization. ROI is a strategic metric for evaluating the business as a whole.

Example: an ad campaign cost $10,000 and generated $30,000 in revenue. ROAS = 3.0. ROMI = 200%. Meanwhile, development cost $50,000, servers $5,000, support $2,000. Total costs = $67,000, total revenue = $30,000. ROI = −55%. The campaign is effective, but the business has not paid off — a typical picture in early stages.

Strategies to Increase ROI

Increasing ROI is a problem that is solved in two ways: increasing revenue at the same costs or reducing costs at the same revenue. In mobile projects, both approaches work simultaneously. Let's look at specific strategies.

The first strategy is reducing CAC. Methods are described in the article about CAC: optimizing creatives, improving targeting, retargeting. Reducing CAC by 20% at the same revenue gives ROI growth from 100% to 140% using the formula: (Revenue − Costs×0.8) / (Costs×0.8) × 100%. The effect is multiplicative — every dollar saved on CAC increases ROI more than an additional dollar of revenue.

The second strategy is growing LTV. Improving retention, introducing subscriptions, optimizing pricing. LTV growth of 20% with unchanged CAC gives ROI growth from 100% to 140%. Both directions work independently — combine them for maximum effect.

The third strategy is channel diversification. Don't put all your eggs in one basket. If Facebook gives ROI of 120% and TikTok gives 90%, combined ROI may be 105%. But if Facebook suddenly raises prices (as after iOS 14.5), diversification saves the business. Optimal allocation — 50–60% on the main channel, 20–30% on the second, the rest — tests of new channels.

The fourth strategy is marketing automation. Using machine learning algorithms to optimize bids, creatives, and targeting. Google UAC and Facebook Automated Rules reduce CPA (cost per action) by 15–25% compared to manual management. Lower costs at the same volumes — direct ROI growth.

Limitations of the ROI Metric

ROI is useful, but not the only metric. It has limitations that are important to consider. The first limitation — ROI does not account for the time value of money. One dollar today is worth more than one dollar in a year. For subscription products, ROI should be calculated with discounting (Net Present Value correction).

The second limitation — ROI does not reflect risk. A project with ROI of 500% may be 10 times riskier than a project with ROI of 50%. In mobile development, this is especially relevant: launching a new game is a high-risk investment, updating an existing one is low-risk. Comparing ROI without considering risk is misleading.

The third limitation — ROI cannot be calculated on a short horizon for subscription products. If a subscription app shows ROI of −50% at Month 1, it does not mean the business is bad. You need to wait 12–18 months for a correct assessment. Investors know this and ask for Projected ROI on a 3-year horizon.

The fourth limitation — ROI does not work for qualitative goals. A branding campaign may have ROI = 0% by direct attribution, but increase brand awareness and organic traffic. Developing an accessibility feature may have ROI = 0%, but improve the app's rating in the App Store. Not all decisions can be evaluated through ROI.