How to Calculate ROI Example
ROI is an business acronym for "return on investment." If you're a serious, thorough business owner you should always seek the ROI on any move that you make for your company. For instance, if you establish a new website, which then causes you to develop new sales leads, you can measure the success of that business decision by calculating the ROI.
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Instructions
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Add up all of your costs related to the initial investment. If this is an ongoing cost, measure your ROI on a weekly, monthly or yearly basis (your choice). In the website creation example, say your costs include the yearly web hosting fees at $250, purchase of a unique domain name at $20 per year, web developer for $2,400 per year, web writer at $3,600 for the year and advertising fees of $1,200. Your total yearly cost in this example is $7,470.
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Add up all of your sales from the year that came in specifically as a result of that investment. Say you brought in $20,000 in web sales in this example.
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Subtract your total gain from the investment ($20,000 in sales) from the cost ($7,470). The result in this case is $12,530.
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Divide the result ($12,530) by the total investment you made in the business ($7,400) to get your return on investment. The total ROI in this example is 12,530 divided by 7,470 which equals 1.68 or 168 percent return on investment.
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Tips & Warnings
It's possible to have a negative return on investment, which means that you're losing money on the investment. In this case, you know it's time to make changes. For instance, if your new website isn't giving you a positive return on investment, you might want to hire a new designer, get an search engine optimization consultant or switch to a new advertiser.
