Return on investment, better known as ROI, is a key performance indicator (KPI) that’s often used by businesses to determine profitability of an expenditure. It’s exceptionally useful for measuring success over time and taking the guesswork out of making future business decisions. The ability to calculate return on investment is extremely valuable for any business, regardless of size or industry. After all, knowing if you’re getting your money’s worth is a basic concept that both individuals and businesses need to understand in order to strengthen — rather than hinder — financial success. By calculating ROI, you can better understand how well your business is doing and which areas could use improvement to help you achieve your goals.How to Calculate ROI At first glance, ROI calculation is relatively easy. Simply divide the gains from your investment by your investment’s cost and you have your answer as a percentage or ratio. If you calculate a positive number, you gained a return on your investment; if it’s negative, you lost money through your investment. For example, let’s say you’re a mid-size company that’s decided to purchase a new piece of software to boost profits. So, your ROI formula may look something like: (Financial gains after software purchase – cost of software) / cost of software This is a pretty straightforward formula that can be applied to practically any business department, no matter if it’s HR or marketing. However, determining ROI can be a bit more complex than a simple math equation. When calculating ROI, it’s important…
Read More: Importance of ROI: Why it Matters for All Businesses
