Calculating return on investment (ROI) in business is one of the most important calculations a company performs. This calculation allows companies to determine the volume of business received by investing a certain amount of money and resources. Basically, this formula allows you to know if an investment is being profitable, that is, if it is making money. The ROI calculation can be applied to different situations and has different applications, whether it be to calculate whether an advertising campaign gets more products to be sold, to find out if a new project is viable or if a company is making money.
Steps to follow:
1. For example, Company ABC invested $100,000 in an advertising campaign to promote a new service. ABC Company received 150 phone calls from the campaign and 50 of the callers have purchased the new service. The volume of new business sold amounted to $500,000. The equation to calculate ROI is: ROI = (return on investment – initial investment) / * investment (100)
2. The first information you need to have to calculate ROI is the return on investment. In this example, it is $500,000.
3. Next, you need to know what the initial investment was. In this scenario, the ABC Company invested $100,000 in the marketing campaign.
4. Now is the time to establish the equation. ROI = ($500,000 – $100,000) divided by $100,000, multiplied by 100.
5. Once the equation is set up, the ROI can be calculated. In this case, the answer is 400 percent, which means that company ABC has a return of 4 times its investment, so it is earning the amount of the initial investment multiplied by 4. In this case, therefore, the investment would be very good. Learn more on ROI.