The Metrics Brothers (fka SaaS Talk) What is ROI and Why Does it Matter in AI Software Investments?
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Oct 29, 2025 Dive into the fascinating world of ROI as it relates to AI software investments! The hosts break down ROI's definition and its importance in the current tech landscape. Discover how to distinguish between soft and hard benefits and why focusing on productivity is crucial. They also tackle the age-old build versus buy dilemma, highlighting hidden costs in both options. Multi-year ROI models and the value of look-back reviews are discussed, emphasizing why these practices can enhance decision-making. Perfect for anyone exploring AI investments!
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ROI Is A Simple Give‑To‑Get Metric
- ROI equals net dollar benefits divided by total dollar investments, i.e., what you get versus what you gave.
- Dave Kellogg emphasizes ROI as a "give to get" metric that measures percent return on investment.
Use Multi‑Year Cashflow Metrics
- Use discounted cash flow terms (NPV, IRR) when comparing multi‑year investments rather than just single‑period ROI.
- Treat ROI as a degenerate DCF and consider net present value or IRR for multi‑year decisions.
Payback Measures Risk, Not Return
- Payback period measures how long money is on the table, not the total return received.
- Dave Kellogg says payback is a risk metric, not a return metric, so don't confuse it with ROI.