What is ROI?
ROI is an abbreviation for Return of investment, which refers to a calculation of the return on an investment. With this calculation, you find out how attractive the investment is and whether it is profitable or not.
You can use the ROI calculation formula for virtually any investment you make, inside and outside of your business. For example: How attractive it is for you to create a new website, hire an extra person in the company, your marketing strategy or something you buy with the idea of selling it on again.
You can use ROI calculation to evaluate an investment. For example, what your marketing activities have yielded in a specific quarter.
In addition, you can also benefit from calculating an expected return on a future investment. This is great info for you if you are a business owner, in a marketing department or something else where you make decisions. Because the decisions you make are typically an investment that should yield a good return.
How do I calculate ROI?
The formula for calculating return on investment is very simple and looks like this:
ROI = (Profit - Investment) / Investment x 100
However, it can be difficult to get an accurate result from the calculation - especially when you want to assess future marketing activities. The reason for this is that the result depends on the data you have that you can include in the formula. Therefore, you should not blindly trust your ROI calculation, but rather use it as a guide to help you decide whether the investment is good, not so good or whether you should not invest at all.
Example of ROI calculation
For the sake of clarity, let's look at an example here.
Let's pretend you call us because you want help with SEO on your new website. We agree on a price of 10,000 DKK which you are very happy about because the effort we have put into your new website has contributed to you selling an extra 15,000 DKK.
In this example, your ROI would be 50%
Can you see the calculation for yourself?
If not, see how we put the numbers from the example into the formula below:
ROI = (Profit of 15,000 DKK - Investment of 10,000 DKK) / Investment of 10,000 DKK x 100 = 50%
This calculation looks quite reasonable and would be called a positive ROI.
What is the difference between positive and negative ROI?
Whether an investment is good or bad translates to whether it is positive or negative.
A positive ROI indicates that the investment in question is good, meaning that you can make money on the investment, while a negative ROI indicates that the investment in question is bad, meaning that the investment will make a loss.
