What is return on investment?

When a business decides to make a purchase or an investment into a project, they first need to work if this move will be profitable for them. Calculating your return on investment means you can see the profit gained relative to its cost.

By entering your details below, the calculator will work out what your return on investment is:

Why is your return on investment important?

Making sensible financial decisions is critical to the success of your business, and your return on investment is a key metric to help you evaluate potential investment avenues and deciding which ones will be the most profitable.

You can use this metric on business decisions from investing in a new startup business, or investing in a new property for potential expansion. You can A/B test multiple investment avenues, for example with social media platforms. This could be comparing your return on investment between Facebook and Instagram. For example, you could invest the same amount of money into advertisements on each platform, however one may give you a better return.

Evaluating and comparing this metric across multiple investment channels will help you make better financials decisions, and create the biggest return, therefore allowing you to be able to grow your business.

How to calculate your return on investment

To calculate your return on investment, you need two figures – your profit and the cost of the initial investment.

For example, let’s say you invest $1,000 into a social media marketing campaign on Facebook, and at the end of the campaign you make $1,250 in sales. Therefore for our calculation we’d need to take the profit and deduct the cost of investment, next we’d divide this figure by the cost of investment, and lastly multiple by 100 to get our percentage.

We have made $1,250 from our campaign, therefore deduct $1,000 from it which was our initial investment, this gives us $250. Next, we divide by our cost of investment and multiple by 100, giving us 25% return on investment.

( ($1,250 – $1,000) / $1,000 ) * 100 = 25% return on investment

( (Profit - cost of investment) / cost of investment ) * 100 = % return on investment

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