Thank you to CO–U.S. Chamber of Commerce for providing the content on How Calculating Your ROI Can Help You Make Good Business Decisions.
Profitability metrics increase visibility into your financial health, marketing tactics, and more. Here’s how to measure your return on investment (ROI).
Return on investment (ROI) is a percentage or ratio comparing your costs of an investment to the revenue generated. Often, small business owners will forecast their expected ROI before making a business decision, such as a technology or equipment purchase. Marketers also use ROI to determine if a technique or campaign earns more revenue than it costs.
Although the ROI formula is simple, some expenses are harder to define, and you may need to measure additional metrics to get a complete picture. However, ROI is an invaluable metric for understanding the impact of an investment. Learn what ROI is and how (and why) to use it.
ROI: meaning and formula
ROI calculates your return on investment compared to what you put in (your total costs). It’s a profitability metric expressed as a percentage or ratio. ROI doesn’t analyze a time period, which differs from the rate of return (ROR) metric that looks at a specific time frame. The standard ROI equation is: net profit (profit minus cost) divided by the total investment cost. Alternatively, you can look at your gains and expenses. This ROI formula is: (gains minus costs) divided by costs. Multiply the result by 100 to get a percentage.
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