How to Calculate ROI
Calculating the return on investment (ROI) in business is one of the most important calculations a business performs. This calculation allows businesses to determine the amount of business received from investing a certain amount of money and resources. For example, the ABC Company invested $100,000 in an advertising campaign to promote a new service. The ABC Company received 150 phone calls from the campaign and 50 of the callers bought the new service. The amount of new business sold totaled $500,000. The equation to calculate ROI is: ROI = (return on investment - initial investment)/investment * (100)
- Difficulty:
- Moderately Challenging
Instructions
Things You'll Need
- Calculator
- Amount of investment
- Amount of business generated from the investment
-
-
1
The first bit of information you need to have to calculate ROI is the return on investment. In this example, the return is $500,000.
-
2
Next, you need to know what the initial investment was. In this scenario, the ABC Company invested $100,000 in the marketing campaign.
-
3
Now it is time to set up the equation. ROI = ($500,000 - $100,000) divided by $100,000 multiplied by 100.
-
4
Once the equation is set up, you can calculate the ROI. In this case, the answer is 400 percent, meaning that ABC Company has a 400 percent return on its investment.
-
1
Tips & Warnings
The initial investment includes money spent and employee time.
Related Searches
Resources
- Photo Credit financial charts image by Chad McDermott from Fotolia.com
Comments
-
Not bad
-
one of my project's ROI was 5455% :)
-
Worth taking alook at!
-
actually probably a better idea to use the gross orofit figure when working out ROI. In this example, if ABC cost of sales was 20%, ROI = 80% of 500000 = 400000 - 100000 = 300000 Therefore 300%.
-
When calculating ROI, please do not forget to include interest rate on the capital being invested, as well as the net present value of money. To do this, you calculate the annual income off the capital using a discounted rate. The formula is Rt over (1+i)t. Rt is net cash flow. I is the rate of return you could be making if invested elsewhere. t is the time of cash flow.
