Return in Investment (ROI) is another useful Key Performance Indicator (KPI).  It can be used for your business as a whole or a segment of your business or even a one off project.

ROI is used to calculate the profitability of an investment or outlay and is calculated as follows:

ROI = ((Gain from Investment – Cost of Investment) / Cost of Investment)) X 365 / number of days

Please note that the length of the investment should also be included to give annualised return.

For example, if you hired a business development contractor for 18 months and the cost was $100,000 and you expected to generate $250,000 in sales then your ROI would be calculated as follows:

($250,000 - $100,000) / $100,000 X 365 / 548
= 100% p.a.

Here the return on the investment is 150% or an annualised return of 100%.

Another way of considering the above calculation is how long will it take for the project to recoup / payback the outlay.  In the above the $100,000 outlay will be repaid in 219 days.

The project will generate $250,000 over 548 days or $456.20 per day.

If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email  admin@mcnamaraandco.com

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