What Is Return on Investment (ROI)? | Business: Explained

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Understanding Return on Investment (ROI) is vital in business for justifying projects, gaining insight into team performance, and prioritizing initiatives.

ROI is a financial metric that measures the profit generated by an investment.

There are two forms of ROI: anticipated ROI, calculated before a project to gauge potential profit, and actual ROI, computed after a project to indicate real profit compared to estimates.

The most common ROI formula is net profit divided by the cost of investment, multiplied by 100. A positive return means revenue exceeds cost, a negative return means the opposite, and breaking even means revenue matches expenses.

Making smart decisions about resource allocation using ROI can accelerate business growth. It helps evaluate projects, advocate for or against them, and measure outcomes of completed initiatives to inform future proposals.