Return on investment (ROI) is a metric evaluating the profitability or gain of a venture. This performance indicator measures an asset’s effectiveness at generating net profit or income, guiding efficient resource allocation, business strategy, and decision-making.
A positive ROI occurs when earnings exceed expenses. A negative ROI happens when expenses outweigh profits. For example, if a marketing campaign costs $4,500 and generates $6,000 in revenue, it delivers a positive ROI.
Here’s the formula for calculating ROI as a percentage, allowing for easy comparison with returns from other investments:
ROI = (Profit earned - Investment) / Investment x 100
Using the example above, the business earned $6,000 on a $4,500 investment, so its ROI is:
($6,000 - $4,500) / $4,500 x 100
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