ROI and payback period analysis

Return on investment (ROI) measures the profitability of investments by comparing gains to costs. Calculate it as (Gain - Cost) / Cost × 100%. Payback period shows how long an investment takes to recover its initial cost through generated returns. Both metrics guide resource allocation decisions.

A feature costing $50,000 to develop that generates $150,000 in additional revenue has a 200% ROI. Its payback period depends on when that revenue arrives. Monthly returns of $10,000 mean a 5-month payback period. Shorter payback periods reduce risk and improve cash flow.

Product managers use ROI analysis to prioritize feature development and justify investments. Compare potential projects by their expected ROI and payback periods. Generally, pursue high-ROI projects with short payback periods first, unless strategic factors override pure financial returns.