Many entrepreneurs know him by his full name ¨Return on Investment¨.
ROI is very effective when it comes to calculating the return of an action, and can be applied to all investments, specially the ones made in marketing campaigns and events, to negotiations, company purchases, projects and improvements in the infrastructure of the company.
It is an economic indicator widely used in the financial field to study the profitability of balance sheets, accounts, companies and brands; It allows you to know how much money your business or company earned or not with the investments made over time. It shows you which investments are worthwhile and how to boost those that are already working so that they have an even better performance.
Based on ROI, it is possible to plan goals based on tangible results and understand if your advertising campaigns, for example, are paying off in certain channels to get leads.
Why is ROI so important?
When an investor is interested in dedicating contributions to your company, he will request to see the ROI indicators, since it is essential to know how much has been generated and will be generated to determine if the investment is worth the effort.
Paying attention to this indicator also allows the company to plan its goals based on possible results to be achieved, observing past performance. It helps you identify the time it takes for investments to bring return. Keep in mind that your company must understand what ROI means to itself and how the metric influences its objectives.
But … How to calculate ROI?
Let’s imagine that your real estate agent is generating $ 100,000.00 for the rental of your portfolio properties, and the advertising investment was only $ 10,000.00.
In this case, we will calculate it as follows:
ROI = (100,000 – 10,000) / 10,000
ROI = 9
In this merely illustrative example, the Return on Investment is positive and was 9 times the initial investment. You can also multiply the result by 100 to get it in percentage (in this case, 900% return).
Calculating ROI is essential for the future decisions of any company or business. Perfect for measuring: concrete actions, campaigns, a performance area, or the entire company.
There are also two indicators that you should be aware of: ROA and ROE.
For business assets it is the Return on Assets (ROA). The relationship between the profit achieved in a certain period and the total assets of a company. It is used to measure the efficiency of its total assets regardless of the sources of financing used and the tax burden of the country in which the company operates.
The most accurate financial indicator to measure financial performance is the Return on Equity (ROE). This ratio measures the return that the shareholders obtain from the funds invested in the company; that is, ROE tries to measure the ability of the company to remunerate its shareholders.
We invite you to have the best investment of all.
Learn more by visiting https://www.rdstation.com/en/blog/roi/