ROI vs Profit Margin: Which to Use
ROI compares profit with what you paid. Margin compares profit with the selling price.
ROI
Profit ÷ cost. It tells you how hard your money works.
Margin
Profit ÷ selling price. It tells you how much of each sale you keep.
Example
Buy at $30, profit $27 on an $80 sale: ROI 90 percent, margin about 34 percent.
Which to use
- ROI when deciding what to buy with limited cash
- Margin when judging room for price cuts
Use both with a minimum dollar profit
High ROI on a $3 item still pays poorly for your time.