Profit and ROI Example

This example illustrates how Profit and ROI are calculated.

To calculate Profit:

  1. Profit is calculated for a Quantile. For this example, we calculate Profit and ROI for Quantile 20.

  2. Find the value of Targets Cumulative for Quantile 20 by looking at the Lift Chart Data. Suppose that this value is 18.

  3. Suppose that the value of Non Targets Cumulative for Quantile 20 is 2. Find this value by looking at the Lift Chart.

  4. Calculate Total Targets which is Targets Cumulative at last Quantile plus Non Targets Cumulative at last Quantile. Suppose that this value is 100.

  5. These values are all user provided. You must provide values based on the business problem.:

    • Startup Cost = 1000

    • Incremental Revenue = 10

    • Incremental Cost = 5

    • Budget = 10000

    • Population = 2000

  6. Calculate Profit using this formula:

    Profit = -1 * Startup Cost + (Incremental Revenue * Targets Cumulative - Incremental Cost * (Targets Cumulative + Non Targets Cumulative)) * Population / Total Targets
    

    Substituting the values in this example results in

    Profit = -1 * 1000 + (10 * 18 - 5 * (18 + 2) * 2000 / 100 = 600
    

To calculate ROI, use the formula

ROI = ((profit - cost) / cost) * 100

where profit = Incremental Revenue * Targets Cumulative, cost = Incremental Cost * (Targets Cumulative + Non Targets Cumulative)

Substituting the values in this example results in

ROI = ((180 - 100) / 100) * 100 = 80