[et_pb_section fb_built=”1″ custom_padding_last_edited=”off|desktop” _builder_version=”4.27.2″ custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” custom_padding_phone=”0px||||false|false” da_disable_devices=”off|off|off” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.27.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” locked=”off” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” pac_dcm_carousel_specific_module_num=”0″ border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” pac_dcm_carousel_specific_module_num=”0″ global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Definition description + related terms” _builder_version=”4.27.5″ header_2_font_size=”32px” hover_enabled=”0″ header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n
Every business owner or investor worth their salt should have a decent understanding of what \u2018return on investment\u2019 is and how it should be leveraged to inform everyday financial decisions.<\/p>\n
Return on investment (ROI) is a very basic metric that helps you figure out how profitable an investment has been by comparing its net profit to the cost of the initial investment. Think of it as an easy way to evaluate whether an investment was worth your time and money \u2013 not to mention the risk. You can apply ROI to everything from marketing campaigns to real estate investments and even your latest stock picks.<\/p>\n
Return on investment shows the monetary value earned from an investment relative to how much you paid for it. You\u2019ll see it expressed as a percentage, and ultimately it\u2019s there to help decision-makers see the investment\u2019s real profitability.<\/p>\n
The ROI formula is very straightforward:<\/p>\n
[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2025\/06\/ROI-Formula.png” alt=”Return on investment (ROI) formula” title_text=”ROI Formula” align=”center” _builder_version=”4.27.4″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text _builder_version=”4.27.5″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n
ROI = (Net profit \/ investment cost) x 100<\/em><\/p>\n For example, let\u2019s say your business invests $5,000 into a marketing campaign that generates $7,500 in revenue (after subtracting costs, that\u2019s $2,500). In this case, your ROI would be:<\/p>\n ROI = ($2,500 \/ $5,000) x 100 = 50%<\/em><\/p>\n This tells you that for every dollar invested, your business made a 50% return. Yes, it\u2019s a very simple metric, but it\u2019s also a great way to prioritise certain resources and compare the value of different investments you\u2019ve made.<\/p>\n Trialling new marketing ads? Planning to expand into different areas? Want to improve your cash flow<\/a> via different strategies? At its core, ROI can help you quantify success by guiding you in:<\/p>\n Tracking ROI across various investments means you can see exactly what\u2019s working and what\u2019s not, which should help you improve sales and stabilise the business for the future.<\/p>\n It depends on your goals and your risk tolerance. A 10% ROI, for example, might be excellent for a real estate investment over 12 months, while a 5% return on a short-term email marketing campaign could fall below expectations, thereby making the investment\u2019s profitability fairly lacking.<\/p>\n Generally, a positive ROI means an investment\u2019s net profit is solid. A negative ROI means a loss. However, even a lower ROI can still be a better investment if it carries less credit risk or is more in keeping with your long-term goals.<\/p>\n When comparing investments and different opportunities, always place ROI alongside other metrics like net present value (NPV), internal rate of return (IRR), and cash flows.<\/p>\n To calculate ROI, you\u2019ll need two main numbers: net income (or profit) and the total investment cost. Your net profit should cover all other expenses, including marketing spend, operational costs<\/a>, opportunity costs, etc.<\/p>\n Let\u2019s look at two examples:<\/p>\n Example 1: Real estate investment<\/em><\/span><\/p>\n Say you buy a rental property for $300,000 and spend $10,000 on renovations. Over the year, it brings in $30,000 in rental income, and you pay $8,000 in property taxes and upkeep\/maintenance.<\/p>\n Net profit = Rental income – Expenses = $30,000 – $8,000 = $22,000<\/em> Example 2: Marketing campaign<\/em><\/span><\/p>\n You invest $2,000 in a paid social media campaign that generates $5,000 in new sales. After subtracting fulfilment and product costs<\/a> of $1,500, your net profit is $1,500.<\/p>\n ROI = ($1,500 \/ $2,000) x 100 = 75%<\/em><\/p>\n As you can see, ROI lets you compare outcomes across unrelated projects. A real estate deal and a marketing campaign might not be apples-to-apples, but ROI puts them on common ground.<\/p>\n When comparing different investments, especially those that don\u2019t last the same length of time, it\u2019s a good idea to calculate annualised ROI. This is a version of ROI that adjusts for the time period to show how quickly returns are being generated.<\/p>\n Let\u2019s say you get a 10% ROI in six months. That equals approximately a 20% annualised return (assuming that performance stays consistent). Comparing investments this way can help you prioritise short-term wins versus longer-term growth.<\/p>\n Also, keep in mind that the highest ROI isn\u2019t always the best choice. A risky investment with a 40% ROI might look very tempting, but it might not match your financial return expectations or risk appetite.<\/p>\n The biggest advantage of ROI is its simplicity and universality. It\u2019s a quick snapshot of how much return you got from what you put in. Because it\u2019s easy to calculate and understand, it\u2019s a go-to metric for all industries.<\/p>\n But ROI isn\u2019t perfect. It doesn\u2019t account for the time value of money, which is why many analysts supplement it with NPV or IRR. It also doesn\u2019t include qualitative factors (i.e. brand value and customer loyalty) that might result from an investment but aren\u2019t easy to measure.<\/p>\n Bottom line? ROI is one of the most widely used financial metrics in business, and for good reason. It can help you nail down marketing campaigns or see if a real estate investment is a good idea.<\/p>\n But it\u2019s not a silver bullet. A high ROI figure doesn\u2019t guarantee success if other risks are overlooked. The most innovative approach is to use ROI as one lens in a broader financial toolkit. With diligence and a good ROI calculator, you can use ROI to make better-informed decisions and grow your business with total confidence.<\/p>\n [\/et_pb_text][et_pb_text admin_label=”Related terms” _builder_version=”4.27.5″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” locked=”off” global_colors_info=”{}”]<\/p>\n See related terms<\/strong> <\/p>\n [\/et_pb_text][ba_social_share icon_bg=”#03002e” icon_padding=”10px|12px|10px|12px|true|true” layout=”classic” show_text=”off” btn_padding=”0px|0px|0px|0px|false|false” btn_bg_color=”RGBA(255,255,255,0)” _builder_version=”4.23″ _module_preset=”default” custom_margin=”50px||||false|false” custom_padding=”25px||||false|false” custom_css_before=” content: %22SHARE THIS%22;|| font-size: 16px;|| font-weight: 700;|| line-height: 22px;|| letter-spacing: 0em;|| text-align: center;|| color: #ff5447;|| margin-bottom: 10px;|| display: inline-flex;|| position: absolute;|| margin-top: 10px;” border_width_top_main=”1px” border_color_top_main=”#e4e4e4″ border_radii_icon=”on|5px|5px|5px|5px” global_colors_info=”{}” custom_css_before_last_edited=”off|desktop”][ba_social_share_child _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”facebook” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”linkedin” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”email” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][\/ba_social_share][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":" Every business owner or investor worth their salt should have a decent understanding of what \u2018return on investment\u2019 is and how it should be leveraged to inform everyday financial decisions. Return on investment (ROI) is a very basic metric that helps you figure out how profitable an investment has been by comparing its net profit […]<\/p>\n","protected":false},"author":28,"featured_media":0,"menu_order":0,"template":"","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"class_list":["post-297012","glo","type-glo","status-publish","hentry"],"yoast_head":"\nWhy ROI matters<\/h2>\n
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What is a good ROI?<\/h2>\n
How to calculate ROI<\/h2>\n
Investment cost = $300,000 + $10,000 = $310,000<\/em>
ROI = ($22,000 \/ $310,000) x 100 = 7.1%<\/em><\/p>\nComparing investments and annualised ROI<\/h2>\n
ROI\u2019s strengths and weaknesses<\/h2>\n
What are assets?<\/a>
What is capital?<\/a>
What is accounting?<\/a><\/p>\n