Can you elaborate your calculation more? Are you using $1 from the $2 profit to reinvest in advertising? Also are you getting an 80% return on that $1 meaning getting back $1.8? ($1 investment in advertising + $0.8 profit)
In short, %80 return means that if you spend 1.0, you only get back 0.8. You forever lose the $1 spent, but get more sales and worth $0.8 after costs.
Here are more details (repeated for clarity)
Assumptions:
20% corporate tax rate (assessed on total profit)
80% Marginal rate of return for advertising (next dollar you can spend)
1) You have $2 profit (before taxes). You can take it and pay $0.4 in taxes, leaving $1.6 after taxes.
OR
You have $2 profit (before taxes), You spend an extra $1 on marketing with 80% return. The $1 spent on advertising returns you $0.8. You now have 1.8 total profit. You pay 20% ($0.36) in taxes, leaving 1.46
You will always loose money if the marketing ROI is less than 100%
Ok, thanks for the explanation. I got confused because of your definition of ROI. Normally, ROI of 80% would mean you invest $1 and get back $1.8 in return. see https://www.investopedia.com/terms/r/returnoninvestment.asp. What you described will mean -20% return and not 80% return. But I get the point you are making and I agree with it.
OR
You have $2, reinvest an extra $1 on marketing with 80% return. You now have 1.8 total profit. You pay 0.36 in taxes, leaving 1.46
You will always loose money if the marketing ROI is less than 100%