Return on investment (ROI) refers to the ratio of return to investment. With ROI, you determine whether an investment revenue generates a profit. That's why ROI is generally used as Key Performance Indicator. Furthermore, you can use ROI for both long-term and short-term decisions. As a result, ROI influences, among other things sales and the marketing strategy.
Calculating ROI has several advantages. First, ROI allows you to see the outlook of an investment. It also measures the potential return on investments and allows you to measure competition in the market.
Using a formula, you can calculate the ROI:
ROI = (Investment Revenue - Investment Cost) / Investment Cost.
This is where the ROI percentage comes from. It must be a positive number; otherwise, the investment results in a loss. The ideal ROI differs per company, but a startup typically aims for an ROI of around 15%.
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