What is ROI and how to calculate return on investment?

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Companies are increasingly concerned about analyzing the results of their investments. The economic pressure associated with considerable annual expenditures without demonstrating direct returns forces organizations to improve their financial standards and better clarify the capital invested.

To continuously improve the performance of the enterprise, it is necessary to distinguish between strategies that are producing results and those that are not. To this end, one of the most commonly used financial indicators is ROI, which allows the visibility of the investment to be assessed.

In this way, its calculation makes it possible to determine the amounts to be invested through savings made or increased revenue — given that it is applicable to all types of investment.

Want to know how much money you are making on each investment? Then understand what ROI is, how to calculate it and how important it is for the company's success. Follow us and enjoy your reading!

What is ROI?
Firstly, ROI (Return Over Investment) is a metric that allows who phone number is this malaysia you to understand whether the investments made are generating positive returns, considering that it expresses the relationship between the amount invested and the amount obtained back.

It is an efficient indicator that provides a better understanding of the company's financial performance, showing the profit or loss, makes it possible to identify the profitability of the product or service, in addition to evaluating whether the marketing tactics used are achieving the expected results.

Return on investment can be used to measure quality, processes, procedures, marketing, change management, and ultimately, it supports choices in decision-making processes. Its purpose is to avoid financial losses that bad investments can cause and also lead the organization to consider the costs and benefits of the investments made.

In general, understanding what ROI is and the efficiency of this indicator allows managers and directors to access the profit or loss of the money invested.





How to calculate ROI?
To calculate the return on investment correctly, you need to understand what the business's cost and revenue are. Revenue is all the money collected from sales in an organization. When calculating a specific area, it is essential to use only the data from the strategy in question.

For example, to calculate the ROI of a social media investment, the revenue figure should reflect sales from that investment only, not from the entire organization.

Costs are all necessary expenses, this is the amount that enables the business to move forward . As mentioned in the previous example, costs are represented by the amount paid for the use of the paid publications resource, in addition to other existing expenses such as telephone, employees, among others.

Therefore, to obtain the correct ROI result, you need to subtract the profit from the initial cost and then divide it by the same value. When obtaining the result, it is essential to know how much this value represents in percentage. Therefore, multiply the ROI value by 100.

To simply calculate the return on investment, simply use the formula:

ROI = (RESOURCE – COST) / COST × 100

To make it easier to understand, consider the following example: the calculation of the return on investment of a company that invested 2,000 reais in software systems and, due to this investment, obtained a profit of 2,500 reais, should be done in the following way:

ROI = (2,500 – 2,000) / 2,000 × 100

ROI = (500 / 2000) × 100 = 25%

In other words, this company's return on investment was 25%.

How important is it to know this metric?
Return on investment is just one of the indicators that can be used to improve understanding of the health of your business. However, by carefully evaluating this indicator, it is possible to identify the main sources of income.

Because it is an effective metric, understanding what it means allows you to better control the results obtained with the investment of capital made in any sector of the organization. It is worth remembering that the value of an enterprise lies in how much it can develop and grow.

Therefore, every institution needs an efficient ROI calculation, considering that it intends to generate profits and retain customers . To do so, find out what the main benefits of this indicator are!

Know how much you are investing
By calculating the return on investment, it is possible to know how much is being invested with simplicity in the data collection, since it only crosses two variables: the amount invested and the profit obtained from the investment. In addition to identifying the percentage of financial return, it also analyzes whether it is in accordance with the stipulations.

Improve business decision making
Another benefit of this metric is the possibility of having a systemic basis for decision-making, making them faster and more diligent.

Being able to make new investments
With the help of ROI, it is possible to justify the investments made and present their results, which makes it possible to make new investments for the desired sector.

Know what needs to be improved
Another important benefit of this indicator is that it serves as a predictive assessment, i.e., it can be used to anticipate the financial return that will be achieved. By justifying the investments made and presenting the results, it is possible to know what needs to be improved.

As you can see, there are many advantages to knowing and applying the return on investment calculation in your company. Because it is easy to apply, it allows for appropriate control of projects under development and also for obtaining good results, containing investment risks and the possibility of having a systemic view of the company.

Finally, it is worth remembering that there is no standard for ROI: the higher it is, the better for the company. It is necessary to reduce expenses, seek to improve operational efficiency and maintain the motivation of the people involved in the areas of the organization. Therefore, understanding what ROI is, knowing how to calculate it and understanding its importance help in controlling each of your actions towards success.