Published on : 06 July 20213 min reading time
In business management, many performance indicators are used to evaluate the success of a company as well as the profitability of its investments. The Return on Investment (ROI) is one of these indicators. But what exactly is the ROI? In which context should it be used? How to calculate it and why is it important to calculate it?
In which case should the ROI be used?
In order to evaluate the gain of a company in relation to the total investment in capital, the ROI (Return on Investment) is one of the indicators to use. It can therefore be used as an indicator in situations where you want to reveal the success of an action in the form of the return on an invested capital. This value is a replica to the question of the performance of the invested capital over a certain accounting period. The return on investment is used to study different sectors of a company, compare investment projects and evaluate real estate investments. Note that before any investment, it is important to estimate the profit level of the investment. This should also be the case for PIM (Product Information Management), and in order to guarantee the success of a particular project, no hidden costs should be omitted. Get help from the expert in the field www.goaland.com, in order to make the most of your event.
The ROI calculation formula
Here is how to calculate the return on investment of an action or event. ROI = (profit of the placement – cost of the placement) / cost of the placement. The profit can be the sales of tickets of a party, the incremental sales after a commercial congregation or the average basket after a customer event. For example, if your placement cost 1000 euros and it brought you back 1500 euros, the return on investment will be equal to (1500 – 1000) / 1000, or 50%.
The importance of calculating the return on investment
It is important to calculate the return on investment for two main reasons: to measure the effectiveness of an event and to justify your expenses. Indeed, an event is always part of an overall company policy and it meets a tactical objective. If the goal of your event is, for example, to increase the sales of a product by 40% within six months, the cost of your event should not exceed the incremental sales revenue. To know this, you will have to measure your return on investment.
You must also calculate your ROI in order to justify your expenses. Unless you are a business leader or have investors, you must report to your management. If you want to organize an even bigger event the following year and thus get more budget, you have to prove that the current year’s event was a success. Nothing is more efficient in this case than calculating the return on investment.