Return on Investment (ROI): Formula + How to Calculate It

When looking at how profitable an investment might be, taking a look at the return on investment (ROI) is a must. It can help teams better quantify the potential benefits of an investment in comparison to how much it’ll cost. 

In our beginner-friendly guide, we’ll give you everything you should know about ROI, including what it is, how to measure and calculate it, the benefits of using this measure, and how your team can best translate return on investment to customers.

What Is Return on Investment (ROI)?

Return on investment — also known as ROI — is a measure of an investment’s performance. ROI is a ratio that gauges how profitable an investment is by comparing the gain or loss to how much it costs. It’s usually represented as a percentage and can be positive or negative.

What is a good ROI?

Knowing whether or not you have a good ROI depends on many factors, such as the industry, the actual investment, and other things. There isn’t one “good” ROI. However, there are some general guidelines to keep in mind. 

For example, many times, a positive ROI is considered a good ROI. Anything about 10% is often seen as a strong ROI, but again, there’s no “universal truth” when it comes to this measure.

Why is measuring ROI important? 

Measuring ROI is important because it helps teams evaluate the potential return of investments on business initiatives or stocks. It’s an essential measure for assessing how effective their investments are. That way, companies can make more data-driven decisions.

For sales reps, it can even be a talking point when it comes to objection handling.

How to Calculate Return on Investment (ROI)

In layman’s terms, knowing how to calculate return on investment is a matter of understanding the net return on investment and the cost of the investment.

 Here’s what an ROI formula might look like.

ROI formula

There are two main ROI formulas that folks can use to measure how profitable an investment is relative to its cost. ROI measures include the net return in the numerator of the formulate because ROIs can be either positive or negative.   

The first ROI formula is:

ROI = ([Net Return on Investment] / [Cost of Investment]) * 100

In other words, the net gain or loss from the investment over the initial cost of the investment. Here’s an example of how that could play out. 

Imagine you invested $5,000 in a marketing campaign that created $20,000 in revenue. Your ROI would be ROI = (($20,000 – $5,000) / $5,000) * 100 = 300%.

Now, this is a made-up example, but if this were a real scenario, it would be quite a strong return on investment.

The second ROI formula can be represented like:

ROI = ([Final Value of Investment – Initial Value of Investment] / [Cost of the Investment]) * 100

In other words, the initial value of investment is subtracted from the final value of the investment then divided by the cost of the investment. Then, multiply by 100.  

ROI calculators

There are also plenty of ROI calculators that will calculate your return on investment for you. Some common examples are: 

• Calculator.net
• Omni Calculator
• Bankrate

Just keep in mind, you should always try to double-check after using an ROI calculator to make sure there are no errors.

The Top Benefits of Measuring ROI

Calculating and measuring return on investment comes with a whole host of benefits. First and foremost, measuring ROI will help you understand the profitability of the investments. In other words, ROI allows you to figure out which initiatives lead to a positive return and which don’t, which can help you understand where to put your efforts. Specifically, this shows you where you should invest your resources so you can pivot to investments that have the highest potential for ROI.

In a similar vein, measuring ROI can help you justify investments or resource allocation to key stakeholders. For example, if your team is able to effectively show the value of these investments to leadership, management, investors, or other stakeholders, they’ll be more likely to lend you their support. 

Of course, measuring return on investment also helps teams make more informed decisions based on tangible evidence, no matter what industry you work in.

4 Steps to Improve Return on Investment (ROI)

If your return on investment isn’t what you hoped, don’t fret. Here are four steps to improve your ROI for better results down the line.

1. Pinpoint key performance indicators (KPIs)

To start, identify the key performance metrics that can help you best measure how effective your investments were. Getting an idea of these metrics can also help you set clear goals. When setting goals, make sure they’re SMART — that is, specific, measurable, achievable, relevant, and time-bound. 

It’s a good idea for teams to track and monitor the relevant KPIs on a regular basis so trends, patterns, and areas of improvement can be identified. 

2. Track and analyze relevant data.

Next, track and evaluate the relevant data to your return on investment. To do this, you can use data analysis tools to streamline gathering, analyzing, and visualizing whatever data you’re working with. As mentioned above, this’ll do wonders in helping you pinpoint specific patterns and trends that crop up that’ll shed light on your investments.

Depending on your specific situation, you can use A/B testing to play with various approaches and pin down the most effective methods. 

3. Make your decisions data driven.

Based on the trends or patterns you identify, make sure your decisions align with the data you have. For example, making data-driven insights can help you optimize your investments by dividing up your resources into investments with the most significant potential for ROI. 

Not only that, but you can use these metrics to constantly grow and improve by pivoting your efforts to address areas for improvement and tweaking your strategy as you need.

4. Optimize and streamline resources and processes.

The last step when improving your return on investment is to optimize and streamline your current resources and relevant processes. Start by allocating your resources to whatever initiative seems most promising based on the data and insights you gathered. 

From there, you can work on streamlining whatever processes you can to boost effectiveness and lower costs. Then you can assess the effect of both resource allocation and process improvements on your return on investment.

How to Practice Leveraging ROI with Yoodli

Knowing how to measure return on investment is one thing but knowing how to successfully present that to key stakeholders? That’s a whole other story. However, using a tool like Yoodli can take away some of that anxiety. Here’s how.

Yoodli is a virtual sales coach that uses generative AI to conjure up realistic sales roleplays using simulated conversation. Big-name companies like Google, Dale Carnegie, and Korn Ferry have already used Yoodli for increased seller attainment and lower ramp.

Its smooth, easy-to-use interface allows reps and admin alike to easily navigate the platform completely stress-free. It also provides admin personalization for sales enablement leaders. In essence, business leaders can customize Yoodli to make it their own by using their brand-specific methodology and use cases. Yoodli also offers enterprise-grade privacy, including SOC 2 Type 2, GDPR, and more. 

Demonstrating ROI with Yoodli’s sales roleplays

Sales teams can lean on Yoodli to practice demonstrating return on investment to simulated conversation partners. For example, reps can take advantage of simulated but realistic sales environments like cold calling or customer discovery calls to explain ROI without risking losing clients. It’s a completely safe space for salespeople to practice getting comfortable describing and talking about return on investment with clients of different personas. The conversations are so life-like, reps go back and forth with their AI partner, just the way a human would.

Plus, Yoodli gives sales reps with specific, actionable feedback based on how they’re able to talk about and describe ROI.  

Google Cloud recently tapped into Yoodli for at-scale training and implementation to get more than 15,000 sales reps certified. The case study results were so positive that Google extended its use of Yoodli to other enablement programs. 

Get started for free to see exactly how you can use Yoodli to practice discussing ROI and more at https://yoodli.ai/.

Most Common Pitfalls When Measuring ROI

Although learning how to calculate return on investment is as easy as getting familiar with the ROI formula, there are some easy (and common) mistakes teams make. Here are the most common pitfalls when measuring ROI that reps need to know about. 

Overlooking the indirect benefits of measuring ROI

One mistake reps make with measuring ROI is not considering the indirect benefits. Teams can leverage return on investment measures to improve client satisfaction rates, build up brand awareness, and even boost employee morale. 

Not using the right metrics

Failing to use the right metrics for ROI is another common mistake. For example, some reps fall into the trap of using “vanity metrics” or metrics that don’t actually represent the performance of an investment. Instead, choose KPIs that can offer actionable insights and are related to your team’s specific goals. 

Not considering external factors

Lastly, another mistake folks make when measuring and assessing return on investments is not considering the external factors that could affect it. For example, things like specific industry trends or economic conditions can impact your ROI both positively or negatively. 

The Main Takeaway 

There’s no question that return on investment is an incredibly useful, essential metric used to measure how profitable an investment is. Knowing how to measure it and translate that measure to actionable insights is the tricky part. Luckily, Yoodli can help reps practice translating ROI for clients in a way that makes sense, whether it’s during a sales pitch, a cold call, or customer discovery calls.