1. ROI or return on investment: what it is and how you will manage to optimize it
What do you know about ROI?
Often, when you request financing to face certain projects, you come across unfamiliar terms. However, it is essential that you learn to identify what they mean, how to calculate and interpret them.
La return on each investment is decisive for economic result of your business
El ROI, is the main indicator to quantify and measure it. Therefore, if you are dedicated to managing a company, you are an entrepreneur or an investor, you should familiarize yourself with it.
We help you to do it.
2. ROI: definition, importance and calculation
These acronyms come from the English expression Return On Investment, which we can translate as ROI. It is, therefore, an indicator of the return on investment.
Calculating it lets you know if a particular project has given you a economic result satisfactory, that is, whether it has produced profits or losses and in what proportion. Therefore, this reference is ideal to specify if it has been a profitable decision or not.
This metric is one of the most used by companies and professionals. Do not think that it is only used in the economic and financial fields, but also in areas such as human resources, advertising and marketing.
3. How is return on investment calculated using ROI?
The formula that you should apply is this:
[(Income – Investment) / Investment] x 100
Thus, you obtain a percentage that allows you to compare, under equal conditions, the economic result obtained with other actions. The calculation would be the following:
Imagine, for example, that you have invested 1.000 euros in a promotion online. And, thanks to this, you have obtained extraordinary sales worth 2.500 euros. In this way, the difference between the income and the investment is 1.500 euros, that is, the profit.
By dividing it by 1.000—the investment made—and multiplying the result by 100, you get a 150% return on investment.
Obviously, the higher this number, the better. economic result you will have obtained
If the return on investment If it were bad, this calculation would give you a negative number. The lower it is, the more disastrous the initiative has been.
When quantifying this metric, it is important carefully analyze all expenses and income obtained.
If we talk about financing, you should not only count on the interest paid, you also have to consider the commissions and the rest of the expenses.
In the same way, you need to discriminate very well which direct returns come from the invested capital and which do not.
Continuing with the previous assumption, if you received financing to face that advertising expense of 1.000 euros, you will have to add the costs to the calculation.
Suppose you have paid 90 euros for this financial service. So, the final ROI would be 129,36%, which is lower than initially calculated.
In a context of so much economic demand and competitiveness, getting the investments right is essential.
With this metric, you have a resource to calculate, a posteriori, the quality and the return on investment or economic action.
Even beforehand, it becomes an interesting reference to make your investment decisions, yes, you must analyze the estimated income and expenses of the proposal very well.
4. Do you know that you can increase your ROI with alternative financing?
If you have come this far, you will already be clear about the importance of this ratio and why you should consider it. Not only that, you will also have learned that Financing expenses influence the economic performance of your investments.
In other words, everything you save by hiring financing for your projects generates an increase in the return you get. So it suits you select very carefully what financial sources you use in every moment.
For example,
have you heard of the alternative financing?
There are different formulas to the conventional ones to obtain capital. If you always go to the same bank and do not compare options, you will be losing money and returns.
You should know that you have at your disposal a great variety of possibilities, such as the Factoring as a Financial Tool for Managing Seasonal Fluctuations in Trucking, promissory note discount or the contributions of business angels, For example. If you put yourself in the hands of specialized professionals and compare the costs, you will win.
In short, choosing the right sources of financing must be a priority for you. In this way, you will reduce costs and, in parallel, you will obtain a much higher return on investment.
En WorkCapitalWe are specialists in alternative financing and, above all, in benefiting our clients.
Contact us, trust our experience and make sure a better ROI in all your investment and financial projects.
Image Freepik
Image by our-team on Freepik
