Return on Investment (ROI)
What is ROI?
Return on Investment (ROI) is a financial metric which measures the profitability of an investment. It is calculated by dividing the value (benefit or return) generated from an investment by its cost. The result is expressed as a percentage or a ratio.
To calculate an ROI, first work out the net income of the investment. Next, divide the cost of investment by this number. Finally, multiply this figure by 100%.
ROI is used in business to assess the efficiency or profitability of an investment. It is used by investors in the stock market to evaluate a company's performance or to compare the efficiency of a number of different investments. In either case, ROI is a tool for decision-making.
Calculating ROI is important for start-ups because it helps investors understand the returns on their investments. There are a number of ways to calculate ROI, depending on the product's lifecycle. By calculating and sticking to a consistent method, you can be sure that your goals are being met and that you're getting accurate data.
For example, Calculating Return On Investment (ROI) for Software Development Projects typically looks like this: Net Income = Revenues - Expenses Cost Of Investment = Initial Cost + Annual Maintenance Fees + Software Upgrades/Support Costs
How do you calculate ROI?
Step 1: Determine your goal
Step 2: Figure out your investment
Step 3: Calculate your ROI
Step 4: Determine your ROI percentage
What are the benefits of calculating ROI?
Calculating ROI can help businesses track the impact of their decisions and keep track of their company's performance. Calculating ROI can also help businesses evaluate their financial performance. Knowing your ROI is a good reminder for companies to maintain a standard for their finances. Calculating ROI is easy and provides comparative data between companies.
ROI can be used to measure profitability and team performance.