How to calculate ROI
Calculating the return on investment (ROI) in business is one of the most important calculations a business performs. This calculation allows businesses to determine the amount of business received from investing a certain amount of money and resources.
For example, the ABC Company invested £65,000 in an advertising campaign to promote a new service. The ABC Company received 150 phone calls from the campaign and 50 of the callers bought the new service. The amount of new business sold totalled £325,000. The equation to calculate ROI is: ROI = (return on investment - initial investment)/investment * (100)
The first bit of information you need to have to calculate ROI is the return on investment. In this example, the return is £325,000.
Next, you need to know what the initial investment was. In this scenario, the ABC Company invested £65,000 in the marketing campaign.
Now it is time to set up the equation. ROI = ($500,000 - £65,000) divided by £65,000 multiplied by 100.
Once the equation is set up, you can calculate the ROI. In this case, the answer is 400 per cent, meaning that ABC Company has a 400 per cent return on its investment.
- The initial investment includes money spent and employee time.