How to Calculate ROI

Why to calculate ROI

You should calculate the ROI on your investments to find out if the are profitable or not. It is a relative simple calculation to do, and the results can be very mind blowing.

There is plenty of examples of companies not calculating ROI prior to a new investments, that proves to be non profitable.

Make sure you make the calculating, if you are not profitable, please reconsider your investment.

How to calculate ROI

Before calculating the ROI of an investment, must you know a couple key numbers, which makes the ROI calculation.

1) You need your gross profit:

Sales - Cost of goods sold* = Gross profit

* cost of goods sold is the cost of the product plus variable expenses. Which typically consists of the following expenses: Materials used, direct labor, packaging, freight, factory supervisor salaries, utilities for a factory or warehouse, depreciation of production equipment and machinery.

2) You need to know the cost of your investment.

3) Gross Profit - Investment = ROI

4) ROI / investment = ROI in %

The higher % the better a project / investment.