What is ROI?
The definition of ROI: In a nutshell, ROI tells you how much money you have made on your investment and is always expressed as a percentage. If you buy it for a dollar and sell it for two, your ROI is 100%.
The basic ROI formula is as follows
ROI = ((Gross Receipts – Investment)/Investment))*100
Here’s a simple example: let’s say that you purchased a car from an auction for $400. Fixed the car yourself at a cost of $100, and then sold that car for $1,000 through a free classified ad.
Your investment is $400 + 100 = $500.
The “Gross Receipts” are equal to $1,000, the selling price of the car.
ROI = ((1000 – 500)/500)*100 = 100% (You can copy/paste the green text into Excel if you like, that is a working ROI formula that you can use in Excel.)
In other words, you invested $500 and you earned $500. Therefore your profit is 100%.
Assume that the cost of the repair work was $250. The formula would be worked out as follows:
ROI = ((1000 – 650)/650)*100 = 54% (This figure has been rounded off)
Any questions? Feel free to give me a holler, or to comment on this post, below.
Mike
Article table of contents:
- How to Calculate ROI (Return on Investment) (This post)
- Online ROI Calculator
- ROI (Return On Investment) Calculator for Excel (free)
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