Return on Investment (ROI)
What is return on investment (ROI)?
Return on investment (ROI) is a metric that measures whether an investment made a positive financial return when considered against the amount of funding that was initially invested. You can calculate it by dividing the net profit or net gain of the investment by the starting cost of the investment made.
How is return on investment (ROI) calculated?
ROI can be calculated using the following formula:
ROI = (Net Profit / Initial Investment) x 100
As an example, if an investment has a net profit of £1,000 with a starting investment of £10,000, the ROI would be as follows:
ROI = (1,000 / 10,000) x 100 = 10%
Why is calculating return on investment (ROI) important?
Calculating ROI is important because it allows your team and your investors to see how profitable and efficient your investment has been. It can help to guide future investments and the allocation of resources, with ROI guiding whether or not that decision will be profitable.
Relevant Terms
SWOT analysis
SWOT analysis is a strategic planning tool that is used to evaluate the strengths, weaknesses, opportunities, and threats of a business or project.
Basic
Lead
A lead is a potential customer or client who has show interest in your products or services.
Basic
Analytics
Website analytics is the process of collecting and analyzing data about website traffic and user behaviour.
Basic