How to calculate the ROI
Calculate the return on investment (ROI) in business is one of the most important calculations that 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 lets you know if an investment is being profitable, that is, if you are making money. The calculation of ROI can be applied to different situations and has different applications, whether to calculate if an advertising campaign gets more products sold, to know if a new project is viable or if a company is making money.
- Amount of the investment
- Business volume generated by the investment
For example, the ABC Company invested € 100, 000 in an advertising campaign to promote a new service. The ABC Company received 150 telephone calls from the campaign and 50 of the callers have purchased the new service. The volume of new businesses sold amounted to € 500, 000. The equation to calculate the ROI is: ROI = (return on investment - initial investment) / * investment (100)
The first information you need to have to calculate the ROI is the return on investment. In this example, it is € 500, 000.
Next, you need to know what the initial investment was. In this scenario, the ABC Company invested € 100, 000 in the marketing campaign.
Now is the time to establish the equation. ROI = (€ 500, 000 - € 100, 000) divided into € 100, 000, multiplied by 100.
Once the equation is set, the ROI can be calculated . In this case, the answer is 400 percent, which means that the 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.
- The initial investment includes the money spent and the time spent