ROI stands for “Return on Investment,” a term that attracts the interest of every CEO and decision-maker.
ROI is one of the crucial metrics that decides the success or failure of a business.
An Austrian American management consultant and author, Peter Drucker, says that “if you can’t measure ROI, you can’t manage it.”
Now, the obvious question that crosses your mind is: What is ROI, and how do you measure it?
What is ROI?
To put it simply, ROI or “Return on Investment” is a key performance metric used to measure the profit or loss yield from an investment in comparison to its initial costs.
How is the ROI Calculated?
The ROI is calculated by using the formula given below:
ROI = (Net Profit / Initial Cost) x 100
For instance,
A business bags a net profit of $500 with an initial investment cost of $300.
Then, the percentage of ROI can be estimated as:
Percentage of ROI = ($500 / $300) x 100
= 1.667 x 100
= 166.7%
The company’s ROI is 166.7 %
Estimating a company’s ROI is not a “piece of cake.”
Sometimes, even managers make mistakes while evaluating ROI. What are they? Let’s figure them out today!
If you’re eager to find out the pitfalls that often escape the sight of an accountant while measuring your company’s ROI. This infographic resource is just for you!
In this guide, you’ll explore the 10 common mistakes in ROI calculation and how to avoid them for estimating the clear results.
Ready to find out? Let’s get started!
Conclusion
To sum it up, it is common to make mistakes in ROI calculation. You may find some of the pitfalls outlined in the infographic resource familiar or nostalgic.
Knowing these mistakes will help you be aware of them. And alert you to not repeat them when it is your turn for ROI estimation. Calculating the investment returns is not a play thing.
Missing a small factor or element will have a great variation in the final estimated results, leading to unwanted stress and confusion. Therefore, it is better to uncover the common mistakes in the ROI calculation.
After all, determining these pitfalls will make your ROI estimation process simple.
