ROI or return on investment, is a performance metric used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investment's cost. It is usually expressed as a percentage or a ratio.
There are many different ways to calculate ROI, but the most common and simple method is to take the difference in value of the investment at the end of the period and divide it by the investment's cost. The formal is depicted as: (Current Value of Investment - Cost of Investment) / Cost of Investment.
It's important to note that ROI is a relative metric. That is, it only has meaning when comparing two or more investments. An investment with a 20% ROI is not automatically "good." The ROI depends on the expected return of the investment. For example, if you expect a 10% return on your investment, then a 20% ROI would be considered good. But if you expect a 30% return, then a 20% ROI would be considered poor.
In conclusion, the ROI metric is a useful tool for evaluating the efficiency of an investment. Utilize ROI in your company to maximize on efficiency and profits.
How do you calculate ROI?
ROI is calculated by subtracting the initial cost of an investment from its current value, then dividing that number by the initial cost. The result is expressed as a percentage.
What are some examples of ROI?
Examples of ROI include investments in stocks, bonds, real estate, and other assets. It can also be used to measure marketing campaigns or other business activities such as product launches or website redesigns.
Fun Fact:
"ROI is the most important metric for marketers to track. According to a study by Forbes, ROI is the primary metric used by 85% of marketers to measure success in their campaigns." (Gleason, 2018)