Find out if the money applied in your business effectively gives you a return, knowing exactly where you should invest more to increase profits. These are some of the advantages of the professional who knows how to calculate ROI accurately.
But do you know exactly what this is, how it can help your company grow and how it directly influences the prediction of your results? In this post, we will answer all your questions on how to calculate ROI.
What is ROI
The exact measure of how much return you will have on all types of investment you make in your business. That is ROI – return on investment.
It can be applied to specific projects such as a marketing campaign, investment on technology research, the acquisition of new equipment or even the application of resources for training your team.
Why do you need this data?
- To know if your investments are giving the expected result;
- To assist in the planning of result-based goals;
- To facilitate decision-making on the company’s directions;
- To boost your profits.
Understand the importance of this information
By looking at this metric, companies are able to do a more informed analysis of their investments and can figure out exactly when to invest in each sector. By calculating ROI, you will have at hand a rate of return, which determines how much you earn in each activity.
This allows you to have a perspective on the future of each investment and whether or not the processes should continue.
Learn how to calculate ROI
Calculating ROI is simple to do, but you should be aware of using the data as accurately as possible. To obtain the rate of return, subtract the net profit by the investment. Then divide the result by the investment. Here’s the formula:
ROI = (net profit – investment) / investment
Do not forget to include in the amount invested all the resources that were used in the process to make the results more accurate. A very simplified example of this calculation is that of a financial application. Let us assume that you have applied $ 30,000 and that you have earned $ 73,000 at the end of the operation. The calculation is:
(73,000 – 30,000) / 30,000 = 1.43
This result should be multiplied by 100 so that you get the percentage rate of return on investment that, in our example, is 143%.
By using this calculation for all your company’s investment processes, it becomes easier to understand and plan your budget by applying resources in the sectors where there is the most potential for financial return – including choosing the best time to make that investment.