<\/p>\n
You may have heard it said that, in life, you only get out what you put in. It is a nice thought but, if this were strictly true, it would be completely impossible for businesses to operate!<\/p>\n
After all, businesses only exist in order to make profit, and profit depends on getting out more than you put in\u2026<\/p>\n
This is where ‘return on investment’ (ROI for short) comes in.<\/p>\n
‘Return on investment’ is a simple measure of how much you might expect to get back from any particular investment. ROI will basically tell you how much you will get out, when compared to how much you put in, expressed as a percentage.<\/p>\n
You can calculate ROI using the following equation;<\/p>\n
ROI =<\/td>\n | (Revenue from Investment – Cost of Investment)<\/td>\n<\/tr>\n | |||||||||||
Cost of Investment<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n To get the ROI as a percentage, you would take the answer this equation gave you and multiply it by 100.<\/p>\n For example, if after doing the division part of the equation, you ended up with the answer 2, the ROI as a percentage would be 200%.<\/p>\n Confused? To make things clearer, here are some examples of what various ROI percentages mean in real terms.<\/p>\n -100% = You’ve lost all the money you put in.<\/p>\n -50% = You’ve lost half the money you put in.<\/p>\n 0% = You’ve broken even. (Nothing lost, nothing gained.)<\/p>\n 50% = You’ve got back what you put in, plus another 50% of that amount as profit.<\/p>\n 100% = You’ve doubled your money!<\/p>\n Now, let’s take a look at a basic business example and see how this formula would apply.<\/p>\n Say some children wish to set up a lemonade stand on their street. They spend \u00a35 of their pocket money on lemons, sugar and all the other ingredients that they need.<\/p>\n They have enough to make 20 cups of lemonade. They charge 50p a cup and manage to sell them all. At the end of the day they would have \u00a310 in their till.<\/p>\n Their ROI formula would look like this;<\/p>\n
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