How to Calculate ROI

by Sam Ashe-Edmunds; Updated September 26, 2017
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"Return on investment" refers to the tangible and intangible benefits you receive from the use of your time or money. Calculating intangible returns and returns on the amount of time you invest in a project can be trickier than calculating monetary returns on financial investments.

Monetary Calculation

Calculating a tangible, monetary return on investment requires you to subtract the amount of an investment from the revenues produced and divide that number by the investment. This is represented as Gain from Investment minus Investment divided by Investment. For example, if you buy $1,000 worth of inventory and sell the inventory for $5,000, your gross return on your investment is $4,000. To get your percentage ROI, the calculation would be $5,000 minus $1,000 divided by $1,000, giving you a return of four times your investment, or a 400 percent return on your investment. To get your net return on investment, you must subtract taxes paid on the $4,000. If you borrowed the $1,000 investment, you would also need to calculate the amount of interest you paid on it while you sold the inventory.

Intangible ROIs

If you gain non-monetary benefits from an investment, you generate intangible returns. For example, if you spend $2,000 sending Christmas gifts to your best customers, you might not generate direct sales from that investment, but you might keep them as customers the next year. When you spend money on image advertising, you might not be able to identify a direct spike in sales, but your return includes a reinforcement of your brand among your current customers and increased brand awareness among potential customers. If you spend 20 hours during the month creating an organization chart or wellness plan for your company, you lose the ability to bill those 20 hours or make sales calls, but you strengthen your business operations.

About the Author

Sam Ashe-Edmunds has been writing and lecturing for decades. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such Smart-Healthy-Living.net, SmartyCents and Youthletic. Edmunds has a bachelor's degree in journalism.

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