What is ROI?
ROI, as written above, is an abbreviation for Return of investment, which refers to a calculation of the return on an investment. In this calculation, you find out how attractive the investment is and whether it is profitable or not.
You can use the ROI formula for virtually any investment you make, inside or outside your business. For example: How attractive it is for you to make 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 make a calculation of an expected return on a future investment. This is super info for you who 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 you want to make a good return on.
How do I calculate ROI?
The formula for calculating the 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 assessing future marketing activities. The reason for this is that the result depends on the data you have, which you can include in the formula. Therefore, you should not rely blindly on your ROI calculation, but rather use it as a clue to help you decide whether the investment is good, less good or whether you should not invest at all.
Example of ROI calculation
For good measure, let's look at an example here.
Let's "pretend" you're calling 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 on your new website, has contributed to the fact that you have sold for 15.000 DKK extra.
In this example, your ROI would be 50%
Can you see the calculation for yourself?
If not, see how we've 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 will be called a positive ROI.
What is the difference between positive and negative ROI?
Whether an investment is good or bad, it can be translated into whether it is positive or negative.
A positive ROI indicates that the investment is good, i.e. you can make money from the investment, while a negative ROI indicates that the investment is bad, i.e. the investment will make a loss.
