How to calculate ROI
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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.
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- The initial investment includes money spent and employee time.
Kristie Lorette started writing professionally in 1996. She earned her Bachelor of Science degree in marketing and multinational business from Florida State University and a Master of Business Administration from Nova Southeastern University. Her work has appeared online at Bill Savings, Money Smart Life and Mortgage Loan.