The Return on Investment Formula tells you how much money you've made on an investment. The end result of the formula is expressed as a percentage. If you double your money, your ROI is 100%. If you break even, your ROI is 0%.
For example, a company may use ROI to evaluate the results of an advertising campaign, to see how well that campaign paid off. Also, if that company is running multiple ads, they can use ROI to directly compare the results of their ads against the one another.
Video: How to calculate ROI (with examples)
Download the ROI Workbook
The ROI workbook includes the slides used in the video as well as a complete transcript.
What is the formula for ROI?
ROI = Net Profit divided by Investment x 100. The two minute video, above, explains the formula in depth and includes easy to follow, real world examples.
How do I calculate ROI in Excel?
This is a simple example for Excel. Copy the following into Excel, starting in the upper-left-hand corner (cell A1).
| Investment | 100 | |
| Sale Price | 150 | |
| ROI | =(B2-B1)/B2*100 | % |
How does ROI apply to marketing?
In marketing, the result of the ROI formula becomes a "metric", or a criterion.
With this metric, you can compare your return on two or more ads to see which is working better.
How does ROI apply to IT?
The answer to this question is actually a warning. The ROI formula requires two numbers: investment and profit. Without these numbers, any representation using ROI is probably being used to mislead or misinform.
An accurate measure to use when comparing computer systems is called TCO, or Total Cost of Ownership.
As a buyer, it is very important that you look at where the salesperson got their numbers. A system that appears to be less expensive up front can end up costing significantly more as that system is setup and customized for your business. For example, open source software may require significantly more programming and modification than its purchase-able counterpart.
If you are about to make a significant purchase and have questions regarding the logic or numbers or what is being offered, please feel free to get in touch with me for a free consultation.
How do I use ROI for Social Media?
The situation here is the same as above. If you have actual numbers you can calculate your return on investment. If the numbers you have come from your personal investment in time, or the amount of website traffic, newsletter subscriptions, etc., you cannot calculate ROI.