Return on Investment, or ROI for short ROI, is a financial ratio used to assess the profitability of an investment. It shows the extent of the profit or loss generated in relation to the capital employed.
The basic calculation is as follows:
ROI = (return on investment ÷ investment cost) × 100
One example:
A start-up invests 20,000 euros in a marketing campaign and, as a result, generates an additional profit of 30,000 euros.
30,000 euros ÷ 20,000 euros × 100 = 150 per cent ROI
An ROI of 150 per cent means that the profit generated is 1.5 times the capital invested.
ROI helps companies and start-ups to:
- Comparing investments with one another
- To evaluate marketing and sales initiatives
- Classifying projects and purchases in economic terms
- To use resources in a more targeted way
- To justify decisions to investors and other stakeholders
ROI can be calculated for the following areas, amongst others:
- Marketing campaigns
- Product developments
- new technologies
- Machinery and plant
- Further training
- Staffing measures
- Market entries
The assessment is generally carried out as follows:
| ROI | Meaning |
| positive | The investment has generated a profit. |
| equals 0 | Profit and investment costs are the same. |
| negative | The investment resulted in a loss. |
A high ROI generally indicates that an investment has been financially successful. However, this metric should not be considered in isolation. For example, it does not automatically take into account the investment’s duration, risk or strategic advantages.
The calculation may also vary depending on the costs and revenues used. Companies should therefore clearly specify which figures are included in the calculation.
innoWerft helps founders to assess investments and business decisions from a financial perspective, to analyse relevant key performance indicators, and to present financial assumptions in a clear and comprehensible manner for discussions with investors.