Return on Investment (ROI) is the amount of money a trader gets back for the money they put in. “ROI” stands for “return on investment.” The returned amount is given as a percentage to show how well an investment did.
How to Figure Out ROI?
Determining ROI is easy, and the method is simple to follow. For example, if an investor put $5,000 into new technology and got $7,500 when the product came out, their return would be $7,500 – $5,000, which is $2,000. If they split the $5,000 by $2,500, they would get back half of what they put in, or 50%.
What Is ROI?
It’s essential to know about return on Investment. Return on Investment is enormous when considering what it can do for a business. ROI figures out how well an investment did, but it can be something other than a foreign venture. Once you know how well an investment did, you can find ways to improve it next time. Here are some situations where ROI is a good sign of how well a business is doing.
- New Product Reporting: ROI can be used to determine how well an investment in a new product went by comparing how much money it made to how much it cost to make, market, and sell.
- Smart HR: Many businesses hire workers but must find out if they’re doing well. Find their ROI by comparing their sales money to their salary. This is one way to keep track of their success.
- It can be hard to track how well a sales or marketing project is doing, but ROI can help. ROI compares how much it costs to market a product to how many sales it brought in to see if the effort broke even, did better than expected, or didn’t work.
- Example of a Return on Investment
- Return on Investment (ROI) is shown by the three reasons above. Let’s look at these examples better to learn how to figure them out.
- Reporting on New goods: It can be pricey to study, make, market, and sell new goods, so it’s essential to keep track of costs. It’s important to check back after the first year of selling the goods to see if you got your money’s worth. Say the company spent $25,000 on research, development, marketing, and sales of a new product that made $32,000 in sales in its first year. The ROI is $7,000 divided by $25,000, or 28% (remember to figure out your return, which is $32,000 minus $25,000).
- Innovative HR: If you hire a salesperson for $100,000 a year, you might need to find out they are worth it. With a year of work under their belt, you can look at a record to see how many sales they made. If they brought in $250,000 in sales, you’ve found an absolute star with a 150% ROI ($150,000/100,00).
- Integrated Tracking: Keeping track of a marketing campaign can be challenging if a company still uses old-fashioned methods. But, it is much easier to keep track of a digital marketing campaign. That’s not good news for your marketing staff if you spend $2,500 on a drive and only make $2,000 in sales. That’s a 20% ROI (-$500/$2,500).