Return on Investment (ROI) Calculator
Financial Analytics ROI tool plays a significant role in the business world.
What is ROI? What does ROI stands for?
ROI means return on investment. The easiest way to treat the ROI as an indicator of what is the percent of profit on invested money and will it pay off
Generally investors are not interested in how is profit made - they are interested in how much they can get from investments.
The difficulty lies in the fact that the net ROI is almost impossible to calculate, since it depends on many factors: what kind of business you have, does it depend from the season, maybe it's short term income, over what period you expect to make a profit. Even the crisis in the countries should be taken into account.
For different business projects ROI will have a different meaning, but it's the main indicator of being profitable.
The basic formula for ROI calculation is:
ROI = (investment returned – investment cost) / investment cost * 100%
Let's consider a simple example in the sale of laptops.
The online store has placed its advertising on the internet. The average click costs 10 cents and the duration of the advertising campaign is one month.
During this time ad is clicked 10,000 times, and just in a month on advertising the store has spent $ 1,000.
From these 10 000 clicks 8 people actually made a purchase.
The sum of all the purchases made amount of $ 12,000.
The total cost of the goods that includes the cost from the manufacturer plus transportation costs, is $ 8,000.
Now let's calculate the profit from the sale of notebooks: 12000 — 8000 = $ 4000 for one month.
But we need ROI, so we subtract the amount spent on online advertising from income will get and the result divide by the advertising budget:
(4000 — 1000) / 1000= 3 or 300% i.e. for every invested dollar store earned $ 3.
If you want to get the figure in percentage, then multiply the result by 100%
What does ROI result mean?
- if the result is less than or equal to 1 - this advertising campaign was a failure, for less than 1 even didn't cover the cost;
- Even if we have a metric of 1 or more , we can't speak about significant profit, but there is at least the ROI from the advertising campaign;
- if it's 2 or more is considered a good index, we can say the have got positive results from this campaign.
The online calculator will show you the rate of return from investment, also will calculate annually ROI if we input time frame.
When assessing marketing, ROI is often confused with ROAS (return on ad spend).
ROAS allows you to measure only the effectiveness of the advertising campaign, not considering the other costs (salaries, transportation, etc.).