ROI: definition, example and calculation of return on investment (ROI)

ROI: definition, example and calculation of return on investment (ROI)

the KING is the acronym of the English appellation R eturn O not I nvestment. The translation into French is easy: it is quite simply the return on investment. If everyone has heard this expression at least once in their life and roughly knows what it means, let’s remember its definition.

The “return on investment “,” ROI “or” ROI “like us discussed throughout this article, is a calculation expressed as a percentage and who will be able to assess the amount of money generated positively compared to the amount of money invested. So it’s not just a question of “How much we won” or “how much we lost”.

In addition to the gain aspect (or financial loss that the ROI will formulate, this is a real method to define which attitude to adopt towards investments. In Indeed, the ROI will make it possible to see the financial scope of an investment past or in progress, and beyond even estimate the return of a possible future investment.

Note bene: ROI, return on investment, rate of return, rate of profit, yield… You can find this notion under various names. KING is however widely used, just do a search on the web to realize how much this acronym is democratized and used in good number of domains.

In marketing, ROI is ROI!

More seriously, the ROI is useful to several actors in their development work. From the smallest investment to the largest speculation, ROI is a valuable tool for performing accurate assessments and in-depth studies.

Small businesses and medium sizes use it to determine, for example, which investment will be the most financially efficient within the framework of their projects. The idea is calculate the ROIs of all the options to choose the most profitable.

Investors use it to define in which financial project (s) their money will be best profitable.

ROI: calculation of return on investment

Usually, we perform the calculation ROI with figures for a full year.

ROI = (positive or negative gain as a result of the investment – cost of the investment) / cost of the investment

Example of ROI calculation: you have invested 6,000 euros in a inbound marketing strategy which has generated 50,000 euros in turnover (turnover) since its installation. Your calculation will be: (50,000 – 6,000) / 6,000 = 7.33

Your ROI is 733%.

Calculation of the mentioned ROI above is a general formula, after all quite basic, which does not take into account the risk incurred, neither the different inflation rates nor the non-material benefits associated with the investment itself (better employee involvement, brand image improvement, increased visibility, time saved, etc.). Depending on the planned investment, the financial actors perform different operations and take into account various settings.

ROI is a tool to understand and to master, the result of which will be able to help in the final decision-making concerning investments, as well as to analyze their performance.

From now on, the ROI no longer has secrets for you!

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