Final answer:
The second step in ROI metrics is to define the investment by quantifying its total costs. Once the investment's cost is determined, profits can be assessed and the ROI can be calculated using the formula: (Net Profit - Cost) / Cost.
Step-by-step explanation:
As it relates to ROI metrics, the second step is to define the investment. ROI, or Return on Investment, is a measure of the profitability of an investment. To calculate ROI, you initially need to quantify the cost of the investment. This involves adding up all expenses associated with the investment. Once the cost is determined, you can assess the gains from the investment and then use the ROI formula:
ROI = (Net Profit from Investment - Cost of Investment) / Cost of Investment
For example, if a company spends $1,000 on an advertising campaign and as a result, earns revenue of $1,500, the net profit from the investment is $500. So, the ROI would be:
ROI = ($500 / $1,000) x 100 = 50%
An ROI of 50% would indicate that the investment was profitable. It's crucial to identify and accurately record all costs to ensure that the ROI calculation provides a true picture of the investment's performance.