How to Define ROI

The key element for business management is to essentially make some form of gain on all of the time and money invested initially. A return on investment (ROI) measures the profitability of an investment by dividing the revenue that each product has generated by its expenses. In order to fully understand the gain from the investment you must also factor in the cost of the investment. Overall, the ROI tells the story of a business's financial successes or hardships.

Instructions

1. Determine the business's financial metrics, goals and objectives. This will also help in determining if all aspects of your ROI have been achieved.

2. Identify the business's total benefits. Include money saved by the business, money made and anything that positively adds value to the business’s bottom line.

3. Begin to gather financial data for your particular business. Total costs include development costs and other capital investments or expenses.

4. Calculate the ROI using the following formula: (total benefit - total costs)/ (total costs) = ___ X 100 = ROI

5. Determine if the ROI is substantial based on the business's financial return expectations. A ROI greater than zero is a gain.