The ROI (Return on Investment) calculation formula is used to measure the profitability of an investment, campaign, or project by comparing the return or benefit gained to the cost of the investment. Here’s the standard formula:
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ROI Formula
ROI=(Net ProfitCost of Investment)×100\text{ROI} = \left( \frac{\text{Net Profit}}{\text{Cost of Investment}} \right) \times 100ROI=(Cost of InvestmentNet Profit)×100
Components of the Formula:
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- Net Profit: The total gain or return from the investment minus the cost of the investment. This can also be calculated as:Net Profit=Total Return−Investment Cost\text{Net Profit} = \text{Total Return} – \text{Investment Cost}Net Profit=Total Return−Investment Cost
- Cost of Investment: The initial cost or the amount spent to make the investment (e.g., advertising spend, product cost, etc.).
Example of ROI Calculation
Let’s say you run a paid media campaign where you spend $1,000 on ads and generate $3,000 in revenue.
- Net Profit = Total Return ($3,000) – Cost of Investment ($1,000) = $2,000
- ROI = (2,0001,000)×100=200%\left( \frac{2,000}{1,000} \right) \times 100 = 200\%(1,0002,000)×100=200%
So, the ROI for this campaign would be 200%.
Notes:
- A positive ROI indicates that the investment is profitable.
- A negative ROI means that the investment led to a loss.
- ROI is often expressed as a percentage, making it easier to compare the profitability of different investments or campaigns.