WHAT IS RETURN ON INVESTMENT (ROI)?

Find below what “Return On Investment” is. Return on Investment (ROI) meaning and definition and formula – how to calculate ROI.

Brought to you by Mau, Global Head of Marketing Strategy at eDigital

WHAT IS RETURN ON INVESTMENT (ROI)?

In simple words, Return On Investment (ROI) is a performance measure used in business and marketing.

Return On Investment is a ratio between income and investment.

A high ROI means the investment’s gains (also called: returns) are favourable to its cost.

Business managers and marketers use the ROI formula to evaluate the efficiency of an investment or to compare the efficiencies of several different investments.

RETURN ON INVESTMENT (ROI) FORMULA

Return On Investment can be calculated in different ways depending on the goal and application.

Return On Investment = (Gain from the investment − the cost of investment) / the cost of investment

Return on Investment = (Revenue − the cost of goods sold) / the cost of goods sold

By gaining a deep understanding of the ROI, you can get a more accurate sense of how your business is performing.

ROI is one of many business performance tools to understand the health of your business.

CONCLUSION

Calculating Return on Investment (ROI) is an important financial, business and analytical metric used in various contexts, including investments, marketing, finance and business.

The ROI formula provides valuable insights, guides decision-making and resource allocation and helps professionals achieve their financial and strategic goals.

ROI is especially important when you want to know the effectiveness of an investment or a project and whether it is generating positive or negative returns.

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