Return on Investment
A measure of profitability comparing profit to investment.
Return on investment (ROI) measures the gain or loss generated relative to the amount invested, expressed as a percentage. It's used to evaluate the profitability of business investments from equipment purchases to marketing campaigns to hiring decisions. ROI helps compare different investment opportunities and prioritize where to allocate limited resources.
Formula
ROI = (Net Profit from Investment ÷ Cost of Investment) × 100Example
A business spends $10,000 on a Google Ads campaign that generates $35,000 in new revenue with $12,000 in associated costs—ROI is ($35,000 - $12,000 - $10,000) ÷ $10,000 = 130%.
Why It Matters for Your Business
Every dollar in your business should work for you, and ROI is the simplest way to evaluate whether an investment is generating adequate returns.
More Business Terms
Accounts Reconciliation
Ensuring account balances match between different records.
Break-Even Point
The sales volume at which revenue equals costs.
Budget
A financial plan estimating income and expenses.
Financial Forecast
A prediction of future financial performance.
Capital Expenditure
Funds used to acquire or upgrade physical assets.
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