Return on Investment (ROI) is a universal metric used to evaluate the efficiency or profitability of an investment. Whether you are buying real estate, running a Facebook ad campaign, or upgrading factory equipment, ROI tells you if it was worth it.
The ROI Formula
The basic formula is simple:
ROI = [(Net Profit) / (Cost of Investment)] x 100
Common Pitfalls in ROI Calculation
- Ignoring Hidden Costs: In real estate, people often forget closing costs, maintenance, and property taxes when calculating their investment cost.
- Ignoring Time: A 50% ROI over 1 year is incredible. A 50% ROI over 10 years is mediocre. Always consider the annualized return.
Before committing capital to your next big project, run the scenarios through our ROI Calculator to ensure the numbers make sense.