What is ROI and how do you count it?
It’s not a mistake when you decide to start investing in a stock/business, buying assets for the business, or investing in a project. But, it will be a mistake if you don’t do the calculation correctly when you spend a possible little amount of funds.
Therefore, you should learn a way to calculate the estimated advantages or losses that you might get when investing, this profitability ratio is called Return On Investment or ROI.
Definition of Return On Investment (ROI)
Quoted from Journal.id, ROI in Indonesian is called return on investment or the return rate of investment is a ratio that shows the results of the number of assets (assets or wealth possessed) used in the company for a measure of management efficiency.
This ratio shows the results of all assets controlled by ignoring funding sources, this ratio is usually measured by the percentage. Not infrequently, ROI calculations include the duration of time needed to achieve a target.
If you are a beginner in the business world, you should understand how to count ROI. Because ROI is a method of calculation that can be useful for almost all the decisions you will take for your business. In addition to calculating investment, buying assets, and investing, ROI is also useful for calculating if you want to recruit workers to help you run a business.
Advantages and disadvantages of return on investment (ROI)
Some advantages make it easier for you to calculate assets if you use ROI, such as:
- It’s easier for you to make a decision to buy assets, provide funding for certain projects or programs, or when deciding to invest.
- Can measure the efficiency of capital use, production, and sales.
- Can compare your business with a competitor business. But, this can only be achieved if you have industrial data until you can calculate the industry ratio first.
- Can be used to plan business.
However, ROI also still has some disadvantages that cannot be controlled, namely:
- Do not include the capital costs into the formula so that high ROI values cannot be called effective if not compared to the capital costs.
- The percentage obtained from ROI calculation cannot always be compared to competitors, because each business has different accounting and management practices.
How to calculate Roi.
After understanding the definition of the shortcomings and advantages of return on investment or ROI, it’s time for you to know how to calculate ROI. There are many things that you must know beforehand, namely the costs to be spent on investment, investment income, and usually including how long it takes the fee is returned. This is the formula:
ROI = (Total Pendapatan – Biaya Investasi) / Biaya Investasi x 100%
Example of ROI 1 case:
As an investor, you want to invest 30,000 shares for 1,500 per share. Two years later you want to sell these shares worth 3,500 per share. Anyway, ROI obtained?
Total investment income = 30,000 x 3,500 = $ 105,000,000
Investment costs = 30,000 x 1,500 = $ 45,000,000
ROI = (105,000,000 – 45,000,000) / 45,000,000 x 100% = 1.3%
Based on the calculation above, you get a ROI value of 1.3 times or an investment of an investment of 133% of the initial capital.
Examples of ROI 2 cases:
You want to buy a printing machine for 170 million. This machine can save the use of labor up to 7 people and the salary of every workforce is 2.5 million per person. How many ROI for a year?
Total Investment Revenue = 7 x 2,500,000 x 12 = Rp. 210,000,000
Investment costs = IDR 170,000,000
ROI = (210,000,000 – 170,000,000) / 170,000,000 x 100% = 23,5%
Based on the calculation above, you only get 23.5% of the initial capital you spend on this investment, meaning, you suffer losses because it only gets a ROI value of 0.235 times from your initial capital.
When running a business or wants to invest, don’t just focus on the nominal profit you will get. But make sure you have calculated accurately to ensure and convince yourself that the business you run can develop in the future.
Pay attention to the number of funds that you must invest in achieving the sales target, the amount of profit obtained, and part of the profit will be used again to develop the business.
If the investment or business you want to do only generates a few profits, most likely the business will have difficulty developing in the future.
Therefore, consider also making your business known by internet users. Even though you may not at the same time get the target you’re the target, there are at least some people with the same niche as your business who will be interested and find out about your business more deeply.
For your business to grow and increase the number of customers you don’t forget to advertise through the Froggy Ads service, you can start by advertising your product, so that later you can improve visitors in your online business portal. FROGGY ADS is an online advertising service that can help you control all your product campaigns. Helps you target the targeting target you want and give you many choices to market your product.