"ROI gives a false picture, partly as a result of excluding longer-term cash flows, the effects on the dynamism of the business and brand equity." This arithmetic difference between subtraction and division lies at the heart of the problems with using ROI as a performance metric." "ROI, however, is the net profit return (R) divided by the advertising investment (I). "The profit, or economic value added, or increase in shareholder value from advertising all require the costs to be deducted from sales revenue." "If advertising is a single, one-off, activity and the resultant future flows of income can be DCFed to present value, then a slightly better case for ROI can be made but it is still wrong." "ROI does not cope well with ongoing future budgets: it is the short-term return divided by the short-term advertising expenditure." It belongs in the P+L, not the balance sheet. "Advertising expenditure is usually continuous from year to year and, mostly, maintains the brand and the bottom line. At the same time, it is not an investment in the capital project sense." "Advertising is an investment in the future cash flow and the benefits often extend beyond the current year. "Marketing people like to say that advertising is an investment, in order not to be treated like any other cost. "ROI was devised for assessing capital projects where the investment is made once and the returns flow during the following years. ROI should not be used as an advertising metric=> please make sure you read this all the way to the bottom.
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