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How to Calculate ROI to Justify a Project

• 12 May 2020

Understanding how to calculate the potential return on investment (ROI) of a project is an essential financial skill for all professionals to develop.

If you’re an employee, knowing how to calculate ROI can help you make the case for a project you’re interested in pursuing and have taken the lead on proposing. If you’re a manager, understanding ROI can give you greater insight into your team's performance . If you’re an executive, working knowledge of ROI can make it easier for you to identify which projects should be greenlit and which should be passed over. Once ROI is proven, it may be possible to replicate success by applying lessons learned from the first project to other segments of the business.

If you’re unfamiliar with accounting and finance , the prospect of determining the ROI of a project may seem beyond your abilities. However, it’s not an overly complicated process. By understanding the basics of financial valuation, which can enable you to put a monetary value on companies, projects, or anything that produces cash flows, anyone can learn to calculate the ROI of a project.

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What Is Return on Investment?

Return on investment (ROI) is a metric used to denote how much profit has been generated from an investment that’s been made. In the case of a business, return on investment comes in two primary forms, depending on when it’s calculated: anticipated ROI and actual ROI.

Anticipated vs. Actual ROI

Anticipated ROI , or expected ROI, is calculated before a project kicks off, and is often used to determine if that project makes sense to pursue. Anticipated ROI uses estimated costs, revenues, and other assumptions to determine how much profit a project is likely to generate.

Often, this figure will be run under a number of different scenarios to determine the range of possible outcomes. These numbers are then used to understand risk and, ultimately, decide whether an initiative should move forward.

Actual ROI is the true return on investment generated from a project. This number is typically calculated after a project has concluded, and uses final costs and revenues to determine how much profit a project produced compared to what was estimated.

Positive vs. Negative ROI

When a project yields a positive return on investment , it can be considered profitable, because it yielded more in revenue than it cost to pursue. If, on the other hand, the project yields a negative return on investment , it means the project cost more to pursue than it generated in revenue. If the project breaks even, then it means the total revenue generated by the project matched the expenses.

Return on Investment Formula

Return on investment is typically calculated by taking the actual or estimated income from a project and subtracting the actual or estimated costs. That number is the total profit that a project has generated, or is expected to generate. That number is then divided by the costs.

The formula for ROI is typically written as:

ROI = (Net Profit / Cost of Investment) x 100

In project management, the formula is written similarly, but with slightly different terms:

ROI = [(Financial Value - Project Cost) / Project Cost] x 100

Check out our video on return on investment below, and subscribe to our YouTube channel for more explainer content!

Calculating the ROI of a Project: An Example

Imagine that you have the opportunity to purchase 1,000 bars of chocolate for $2 apiece. You would then sell the chocolate to a grocery store for $3 per piece. In addition to the cost of purchasing the chocolate, you need to pay $100 in transportation costs.

To decide whether this would be profitable, you would first tally your total expenses and your total expected revenues.

Expected Revenues = 1,000 x $3 = $3,000

Total Expenses = (1,000 x $2) + $100 = $2,100

You would then subtract the expenses from your expected revenue to determine the net profit.

Net Profit = $3,000 - $2,100 = $900

To calculate the expected return on investment, you would divide the net profit by the cost of the investment, and multiply that number by 100.

ROI = ($900 / $2,100) x 100 = 42.9%

By running this calculation, you can see the project will yield a positive return on investment, so long as factors remain as predicted. Therefore, it’s a sound financial decision. If the endeavor yielded a negative ROI, or an ROI that was so low it didn’t justify the amount of work involved, you would know to avoid it moving forward.

It’s important to note that this example calculates an anticipated ROI for your project. If any of the factors affecting expenses or revenue were to change during implementation, your actual ROI could be different.

For example, imagine that you have already purchased your chocolate bars for the agreed-upon $2 apiece and paid $100 to transport them. If the most that the store will pay you is $2.25 per chocolate bar, then your actual revenues drop substantially compared to your projected revenues. The result is a reduced net profit and a reduced actual ROI.

Actual Revenues = 1,000 x $2.25 = $2,250

Net Profit = $2,250 - $2,100 = $150

ROI = ($150 / $2,100) x 100 = 7.14%

Circumstances are rarely as straightforward as this example. There are typically additional costs that should be accounted for, such as overhead and taxes. In addition, there’s always the possibility that an anticipated ROI will not be met due to unforeseen circumstances, but the same general principles hold true.

How to Use Finance to Pitch Your Project

Have you ever pitched a project to senior management, only to have the idea shot down under the guise of “not making financial sense?" It happens more often than you might think. By learning how to calculate ROI for projects you’re interested in pursuing, you can self-evaluate them before they're raised up to decision-makers within your organization and defend them as they’re being considered.

Similarly, by understanding how to calculate ROI after a project you’ve spearhead is done, you can better speak to the contributions that you and your team have made toward shared company goals.

High-performing businesses are successful because they make smart decisions about when and where they allocate available resources. Calculating the ROI of a project before it moves forward can help ensure that you’re making the best possible use of the resources you have available.

To learn more ways that you can use financial concepts to improve your efficacy and advance your career, explore our online finance and accounting courses . Download your free flowchart to determine which is right for you.

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What Is Return on Investment (ROI)?

• How to Calculate ROI

Why Is ROI a Useful Measurement?

• Limitations

What Is a Good ROI?

• Developments

Is ROI Calculated Annually?

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Return on Investment (ROI): How to Calculate It and What It Means

Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost.

To calculate ROI , the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio .

Key Takeaways

• Return on Investment (ROI) is a popular profitability metric used to evaluate how well an investment has performed.
• ROI is expressed as a percentage and is calculated by dividing an investment's net profit (or loss) by its initial cost or outlay.
• ROI can be used to make apples-to-apples comparisons and rank investments in different projects or assets.
• ROI does not take into account the holding period or passage of time, and so it can miss opportunity costs of investing elsewhere.
• Whether or not something delivers a good ROI should be compared relative to other available opportunities.

Investopedia / Lara Antal

How to Calculate Return on Investment (ROI)

The return on investment (ROI) formula is as follows :

ROI = Current Value of Investment − Cost of Investment Cost of Investment \begin{aligned} &\text{ROI} = \dfrac{\text{Current Value of Investment}-\text{Cost of Investment}}{\text{Cost of Investment}}\\ \end{aligned} ​ ROI = Cost of Investment Current Value of Investment − Cost of Investment ​ ​

"Current Value of Investment” refers to the proceeds obtained from the sale of the investment of interest. Because ROI is measured as a percentage, it can be easily compared with returns from other investments, allowing one to measure a variety of types of investments against one another.

ROI is a popular metric because of its versatility and simplicity. Essentially, ROI can be used as a rudimentary gauge of an investment’s profitability. This could be the ROI on a stock investment, the ROI a company expects on expanding a factory, or the ROI generated in a real estate transaction.

The calculation itself is not too complicated, and it is relatively easy to interpret for its wide range of applications. If an investment’s ROI is net positive, it is probably worthwhile. But if other opportunities with higher ROIs are available, these signals can help investors eliminate or select the best options. Likewise, investors should avoid negative ROIs , which imply a net loss.

For example, suppose Jo invested $1,000 in Slice Pizza Corp. in 2017 and sold the shares for a total of $1,200 one year later. To calculate the return on this investment, divide the net profits ($1,200 - $1,000 = $200) by the investment cost ($1,000), for an ROI of $200/$1,000, or 20%.

With this information, one could compare the investment in Slice Pizza with any other projects. Suppose Jo also invested $2,000 in Big-Sale Stores Inc. in 2014 and sold the shares for a total of $2,800 in 2017. The ROI on Jo’s holdings in Big-Sale would be $800/$2,000, or 40%.

What Are the Limitations of ROI?

Examples like Jo's (above) reveal some limitations of using ROI, particularly when comparing investments. While the ROI of Jo's second investment was twice that of the first investment, the time between Jo’s purchase and the sale was one year for the first investment but three years for the second.

Jo could adjust the ROI of the multi-year investment accordingly. Since the total ROI was 40%, to obtain the average annual ROI, Jo could divide 40% by 3 to yield 13.33% annualized. With this adjustment, it appears that although Jo’s second investment earned more profit, the first investment was actually the more efficient choice.

ROI can be used in conjunction with the rate of return (RoR) , which takes into account a project’s time frame. One may also use net present value (NPV) , which accounts for differences in the value of money over time due to inflation. The application of NPV when calculating the RoR is often called the real rate of return .

Determining what constitutes a "good" ROI is crucial for investors seeking to maximize their returns while managing risk. While there's no universal benchmark, several factors influence what's considered satisfactory.

• Risk tolerance: Investors vary in their willingness to tolerate risk. Those who are more risk-averse may accept lower ROIs in exchange for greater stability and predictability in their investments. On the other hand, risk-tolerant investors may seek higher ROIs but are willing to accept greater uncertainty and volatility.
• Investment duration: The time horizon of an investment plays a significant role in determining what qualifies as a good ROI. Longer-term investments typically require higher ROIs to justify tying up capital for an extended period. Shorter-term investments may offer lower ROIs but provide liquidity and flexibility.
• Industry norms: Different industries have varying expectations for ROI based on factors such as market conditions, competitive landscape, and regulatory environment. For example, industries with high barriers to entry or significant capital requirements may require higher ROIs to attract investment.
• Personal goals: Ultimately, what qualifies as a "good" ROI depends on an investor's specific financial objectives. Whether aiming for wealth accumulation, income generation, or capital preservation, investors should align their ROI expectations with their individual goals and circumstances.

What Are the Wider Applications of ROI?

Recently, certain investors and businesses have taken an interest in the development of new forms of ROIs, called social return on investment (SROI) . SROI was initially developed in the late 1990s and takes into account broader impacts of projects using extra-financial value (i.e., social and environmental metrics not currently reflected in conventional financial accounts).

SROI helps understand the value proposition of certain environmental, social, and governance (ESG) criteria used in socially responsible investing (SRI) practices. For instance, a company may decide to recycle water in its factories and replace its lighting with all LED bulbs. These undertakings have an immediate cost that may negatively impact traditional ROI—however, the net benefit to society and the environment could lead to a positive SROI.

There are several other new variations of ROIs that have been developed for particular purposes. Social media statistics ROI pinpoints the effectiveness of social media campaigns—for example how many clicks or likes are generated for a unit of effort. Similarly, marketing statistics ROI tries to identify the return attributable to advertising or marketing campaigns.

So-called learning ROI relates to the amount of information learned and retained as a return on education or skills training. As the world progresses and the economy changes, several other niche forms of ROI are sure to be developed in the future.

What Is ROI in Simple Terms?

Basically, return on investment (ROI) tells you how much money you've made (or lost) on an investment or project after accounting for its cost.

ROI can be calculated over any period of time, but it's most commonly calculated on an annual basis. This allows for easier comparison between different investments and provides a standardized measure of performance. However, in some cases, ROI can also be calculated over shorter or longer periods depending on the specific context and needs of the analysis.

How Do You Calculate Return on Investment (ROI)?

Return on investment (ROI) is calculated by dividing the profit earned on an investment by the cost of that investment. For instance, an investment with a profit of $100 and a cost of $100 would have an ROI of 1, or 100% when expressed as a percentage. Although ROI is a quick and easy way to estimate the success of an investment, it has some serious limitations. ROI fails to reflect the time value of money , for instance, and it can be difficult to meaningfully compare ROIs because some investments will take longer to generate a profit than others. For this reason, professional investors tend to use other metrics, such as net present value (NPV) or the internal rate of return (IRR) .

What Industries Have the Highest ROI?

Historically, the average ROI for the S&P 500 has been about 10% per year. Within that, though, there can be considerable variation depending on the industry. During 2020, for example, many technology companies generated annual returns well above this 10% threshold. Meanwhile, companies in other industries, such as energy companies and utilities, generated much lower ROIs and in some cases faced losses year-over-year. Over time, it is normal for the average ROI of an industry to shift due to factors such as increased competition, technological changes, and shifts in consumer preferences.

Return on investment is a metric that investors often use to evaluate the profitability of an investment or to compare returns across a number of investments. It is expressed as a percentage. ROI is limited in that it doesn't take into account the time frame, opportunity costs, or the effect of inflation on investment returns, which are all important factors to consider.

REDF. " Measurement & Evaluation ."

World Health Organization. " Investment for Health and Well-Being: A Review of the Social Return on Investment From Public Health Policies ." PDF Download. Pages 2-4.

DQYDJ. " S&P 500 Historical Return Calculator ."

Fortune. " The Best Stocks of 2020 Have Made Pandemic Investors Even Richer ."

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How to Calculate Return on Investment (ROI)

Arlene Soto

1 min. read

Updated October 25, 2023

Return on investment (ROI) is a financial concept that measures the profitability of an investment.  There are several methods to determine ROI, but the most common is to divide net profit by total assets.  For instance, if your net profit is $50,000, and your total assets are $200,000, your ROI would be 25 percent. A common definition of ROI is “a profitability measure that evaluates the performance of a business by dividing net profit by net worth.”

In a small business, the uses of ROI could be to measure the performance of pricing policies, an investment in capital equipment, or an inventory investment.  When purchasing assets in a business, such as inventory or equipment, you expect to get a financial benefit from the purchase.  Return on investment is a tool to help decide between purchase alternatives that will either generate revenue or result in cost savings that benefit the net income of the business.  Investors will also look at return on investment when choosing whether to fund a business venture.

Return on investment may also be measured unconventionally, such as in terms of social responsibility or environmental and societal benefits.  This is more difficult to measure—in determining the social return on investment, the payback would need to be quantified to calculate the cost versus the benefit.  A  network of practitioners  was formed in 2006 to facilitate the evolution of calculating social return on investment.

While return on investment is a useful tool to look at profitability, calculations are complicated by other factors such as time, maintenance costs, financing costs, other investment considerations, and the overall goals of the company.  For instance, with the purchase of capital equipment, it is expected that equipment will provide a benefit to the company for several years. As such, the net income will need to be estimated for future time periods to determine the overall ROI.  Additionally, maintenance costs over the life of the equipment will reduce the overall ROI.  An accountant can assist with the formulas to determine more complex ROI calculations.

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Arlene Soto is the director of the Small Business Development Center at Tillamook Bay Community College. She is the former director the Southwestern Oregon Community College Small Business Development Center Director. She is responsible for outreach to Coos, Curry and Western Douglas Counties in Oregon to provide small business development services through free, confidential business advising and low-cost training programs. Arlene has been working with businesses in the accounting field since 1976 and in management since 1988. She is a Certified Management Accountant and a NASBITE Certified Global Business Professional with a Master’s degree in Management from Marylhurst University and a Bachelor’s degree in accounting from Portland State University.

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What Is ROI (Return on Investment)?

Table of Contents

In business, few concepts are as important as return on investment (ROI). The adage that “you have to spend money to make money” is often true, but only if you’ve anticipated the ROI potential of your investments. Whether you’re implementing new business software or aggressively investing in a marketing campaign, the ultimate goal is to make more money. Understanding how to calculate ROI can help you understand which investments are paying off and which costs should simply be cut.

What is ROI?

Return on investment refers to the amount of profit directly related to an expense or group of expenses. Companies generally use ROI to measure the success of a specific project or purchase. If a business owner were to invest money in an advertising campaign, they’d analyze the sales generated by the ad and use that information to determine the ROI. If the money generated exceeded the amount spent, the profit would be referred to as the ROI of the ad campaign.

Investors also want to know the potential ROI of an investment before committing any funds to a company. Forecasting a company’s potential ROI is a key factor for investors who, after all, ultimately want to profit from their investment.

What is annualized ROI?

Annualized ROI describes the average yearly return on an investment over a period of years. This shows how profitable the venture is overall. Annualized ROI can help you analyze and compare the performance of your investment during specific time periods. 

Why is ROI important in business?

Only smart businesses that spend wisely and monitor ROI closely survive in the long run. Some reasons why ROI is so important include:

• Budgeting insight: Calculating ROI can give you a clearer insight into what parts of your business aren’t performing well. This way, you can make more informed decisions on where you should focus your budget . 
• Better hiring decisions: Tracking the ROI on your labor spending can help narrow your criteria when hiring new employees. With insight into your team members, you’ll be able to find the ones that work best for your business. 
• Long-term business planning: ROI can help you understand where your business shines and where you can improve it. With detailed analytics, you can plan for business growth more effectively and have more confidence in your decision. 
• Meeting customer expectations: Keeping track of ROI can also help you meet your customers’ needs. When those needs start to shift, your ROI might decrease. Tracking it means you’ll have enough time to pivot your business strategy . 

If you don’t see an optimal ROI on a certain endeavor, stop throwing money at it — you’re better off scrapping it. Continuing to spend on lost causes is a surefire way to run out of money and run your business into the ground.

What is considered a ‘good’ ROI?

What’s considered a good ROI depends on the investment. When a company is spending money on a piece of equipment, for example, the ROI is in productivity. Meanwhile, marketing spending requires an ROI in sales. The ROI you expect from your search engine optimization efforts will be different from the ROI you look for from an investment in a new factory.

A healthy double-digit ROI is great for starters, and if you identify high-percentage ROIs, you should aim to figure out how to amplify and extend those effects. Consider carefully whether you get an ROI at all and be realistic before signing contracts and spending money. Don’t make any big purchases right away — someone promising the moon is likely not going to deliver good returns.

Limitations of ROI

You can gain a lot of financial foresight by calculating your ROI but measuring your business’s success based on an ROI has its limitations.

Here are three limitations to consider.

• Your company’s cash flow is not directly reflected in your ROI, so your business’s financial health may not always be measured accurately using ROI alone: “For example, the ROI may be 5%, but it may be losing cash flow and be a very costly investment,” said Robert Gauvreau, certified public accountant and chief executive officer (CEO) of accounting firm Gauvreau. “Whereas another investment that is generating 4% ROI may be generating a positive cash return to the investors.” Depending solely on ROI to evaluate the financial health of a project only gives you a partial understanding of what’s affecting your finances.
• To calculate an accurate ROI, you need a firm grasp of your future business expenses: If you don’t yet have accurate numbers for future expenses, or if the numbers comprising your calculation are variable, such as interest rates that may change, the ROI may be inaccurate. 
• ROI only measures the financial success of a project: For example, investing in new computers and tech for your employees may have a negative ROI, but it may make your employees happier and increase retention. The ROI of a project or venture doesn’t account for the nonfinancial benefits of an investment.

Benefits of calculating ROI

Understanding your profits and the impact of an investment on your business is important and extremely helpful when making decisions for your company.

Here are two more benefits that calculating your return on investment provides:

• Calculating ROI allows business owners to track and analyze short- and long-term projects: “You can set simple targets for both short-term and long-term goals, and ROI can measure if you are achieving those benchmarks quickly and easily,” Gauvreau said. 
• Determining ROI helps you evaluate your business’s financial performance: Knowing your ROI keeps your company on track by demonstrating whether your business is profiting above or below its average, said Leonard Ang, real estate agent and CEO of iProperty Management. It’s a good reminder for companies to maintain a standard for their finances.
• ROI is one of the simplest performance metrics to calculate: All ROI does is measure the cost of an investment vs. the revenue that investment yields. It’s a universally accepted financial metric because it’s easy for anyone to understand and translates directly to how much money you’ve made from a given expense. 
• Knowing ROI can help you better understand the impact each department is having on your profits: Since ROI is so simple to calculate, it’s one of the easiest ways to compare the performance of departments within your company. Comparing a department’s ROI this year to its past ROI can help you understand how efficiently it’s performing. 

ROI formula

To calculate ROI is to take the gains of an investment, subtract the cost of the investment and divide the result by the cost of the investment:

ROI = (gains – costs) / costs

For example, let’s say you make a major purchase, like buying a home.

“You purchase your home for $1 million,” Gauvreau said. “After living in your home for three years, you sell it for $1,120,000. The result, after three years, your home increased in value by $120,000.”

If we follow the ROI = (gains – costs) / costs formula, we find that the return on investment is 12%.

($1,120,000 – $1,000,000) / $1,000,000 = 0.12

Another example of ROI would be investing in the stock market, Gauvreau said. If you invest $100,000 in shares of a company, and 12 months later it grows to $160,000, your ROI would be 60% because: 

($160,000 – $100,000) / $100,000) = 0.6

Use return on investment for more effective growth

Understanding the ROI of any project or marketing campaign helps in identifying successful business practices. Many companies use ROI to identify methods of marketing and advertising that yield the highest return based on previous successes. This way, ROI becomes not only a measure of past success but also an estimate for the coming months.

ROI can be applied to most areas of your business and works as a simple but effective method to measure your performance. Using it in combination with non-numerical data, such as employee happiness, can give you some ideas about how to grow your business. With proper ROI use, you can make the most of your resources for long-term success.

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Calculating the return on investment for your business

It's impossible for your business to flourish if you don't invest in its growth. However, it can be hard to determine whether investments will be worth it in the long run. For business owners looking to make smarter financial decisions, this guide outlines everything you need to know about calculating your return on investment (ROI). We cover the difference between a standard and an annualised return rate, run you through the calculations step by step, show you how to interpret the results before addressing the formulas various pros and cons. We conclude by mentioning Kriya's offerings and answering some frequently asked questions.

Whether you're looking to hire new staff or move to bigger premises, if you're a small business on the rise, it's likely you're making a lot of investments. As critical as these expenditures can be, sometimes it's hard to know if you're getting your money's worth. This is where the return on investment, or ROI, comes in.

ROI is one of the best metrics for monitoring your businesses performance. Since its inception in 1914, the formula has helped business owners all around the globe make smarter financial decisions. Specifically, it’s helped individuals and companies take the guesswork out of financing by measuring their return on a potential investment.

Despite its clear benefits, however, many entrepreneurs are yet to familiarise themselves with the formula. Therefore, to clear up any potential confusion, this guide covers everything you need to know about calculating your return on investments. Specifically, we show you how to calculate your basic and annualised ROI and how to interpret the results before outlining the various pros and cons associated with its use.

Before we address its uses, however, what exactly do we mean when we talk about ROI?

WHAT IS A RETURN ON INVESTMENT (ROI)?

In simple terms, ROI is a financial metric that measures the return on an investment relative to its cost. It helps companies and individuals to compare the efficiency of different investments, so they're able to understand if the rewards will outweigh the risks.

Generally speaking, the lower the cost of investment and the higher the net profit, the more positive the ROI. Subsequently, the higher the percentage, the more favourable an investment is likely to be.

The metric is used widely because it’s relatively easy to calculate and can be applied to any type of business or personal investment. It’s specifically popular in the field of marketing because it helps leaders work out if their marketing campaigns are worth investing in.

WHAT’S THE BASIC FORMULA?

The formula for calculating your basic ROI is as follows:

• ROI = 100% * net profit / cost of investment

HOW TO CALCULATE YOUR RETURN ON INVESTMENT (ROI)

Working out your ROI is a relatively straightforward process, especially for small businesses. This means you should be able to analyse your investments in-house without the help of external financial advisors. Depending on the end goal of your calculation, a return on investment can be measured in a number of different ways. However, the formula we've listed above is the most commonly used ratio.

To work out the ROI of a particular expenditure, you can follow the following steps.

1. Determine your net profit from the investment

The net profit represents the total amount of money gained from your investment. In other words, it’s the benefit you and your business will receive if you go through with the -. To work out this figure, you simply deduct the total expenses of the investment from the total revenue.

2. Calculate the cost of investment

Once you’ve established your net profit, it’s time to work out the cost of your investment. To calculate this figure, you simply add the fixed cost of your expenditure to its variable costs. This will provide you with your total cost of investment.

3. Divide the net profit by the cost of investment

In line with the ROI formula, next, you need to divide your net profit figure by the total cost of your investment.

4. Multiply this figure by 100%

Finally, you multiply this decimal number by 100, and you will have your final ROI ratio in the form of a percentage.

WHAT’S AN ANNUALISED RETURN ON INVESTMENT (ROI)?

While the basic ROI formula is the most effective way to measure your immediate returns, it doesn't consider the holding period of the investment. Therefore, if you're looking to analyse your returns over a specific length of time, it may be more appropriate to work out your annualised return.

As the name suggests, an annualised ROI represents the average of an investment's earnings over a year. It's expressed as a time-weighted annual percentage, and types of returns can include capital, interest payments and dividends. The calculation also includes adjustments for compounding interest, so many experts believe it is more accurate than the basic formula.

WHAT IS THE ANNUALISED RATE OF RETURN FORMULA?

The annualised rate of return formula is as follows:

• The annualised rate of return = ( ending value of investment/beginning value of investment) x 100

How to calculate your annualised return

To work out your annualised ROI, you follow the steps below.

1. Determine your beginning value

Your beginning value represents how much your investment portfolio was worth before the capital changed hands. In simpler terms, it’s how much money you put into an investment.

2. Calculate your ending value

Once you’ve established your beginning value, it’s time to work out your ending value. Your ending value is how much you stand to gain from the investment over the period of your annualised return. As stated above, aside from the basic amount of capital, this figure should also include interest payments and dividends.

3. Work out your annualised return

Once you have both of these figures at hand, you can calculate your final annualised return. To do so, you need to divide your ending value by your beginning value before multiplying this number by 100. This will provide you with your final annualised ROI ratio.

HOW TO INTERPRET YOUR ROI

There isn’t much point in calculating your investments basic or annualised ROI if you can’t make sense of the end result. Luckily, interpreting your return is pretty simple: the higher your basic or annualised ROI is, the more fruitful your investment is likely to be.

Since the nature of each investment differs so heavily, there is no benchmark of what a ‘good’ or ‘bad’ ROI ratio is. There are, however, other ways you can interpret your results. By researching other small businesses in your industry and recording the average ROI on their investments, you can gauge what a standard return may look like for a company similar to yours.

You can then compare your results against this figure to establish your business’s performance. You should, however, understand that this comparison will only give you a rough indication of your ROI’s value.

WHY ARE THESE FORMULAS SO IMPORTANT?

By now, you should understand the basics of the standard and annualised ROI formulas. If you are new to the world of profitability ratios, below we explain why they are such a valuable tool for businesses.

They help you to determine profitability

When people invest, they are looking to get more out than they put in. However, due to a whole host of variables, business owners can’t guarantee that this risk will pay off. By calculating the ROI of an investment before they split with their cash, they can calculate its rough profitability. This lowers their chance of encountering negative returns.

They help you to understand risks

Every financial investment involves some degree of risk, and it’s the role of business owners to manage these risks as much as possible. Fortunately, by using the ROI metric, you’re able to avoid risky investments and make the smartest decisions possible for the future of your business.

They are simple to use

Finally, another reason ROI formulas are beneficial is because they're so easy to use. If you're calculating your basic or annual returns, all you need are two key figures. Compared to other financial metrics; these formulas are extremely straightforward. Therefore, it's unsurprising that they're such a staple for business owners trying to manage their finances.

WHAT ARE THEIR LIMITATIONS?

Despite the clear advantages of these formulas, however, they’re far from perfect. To give you a more balanced view of the metrics, here are some limitations to their use.

They aren’t 100% accurate

Return formulas aren’t able to provide accurate financial projections because the formula is based on too many variables. They instead give companies and individuals a rough estimate of their profitability. With this in mind, to avoid getting caught out, business owners shouldn’t base crucial business decisions on these results.

The basic formula doesn’t account for time

As we’ve already addressed, the standard ROI formula only considers the immediate outcome of an investment. This makes it hard to predict how an investment will pay off later down the line. Fortunately, if you’re looking to understand your investments return over a 12 month period, you can use the annualised ROI formula.

Results can be inconsistent

While the standard ROI metric is the most popular way to calculate returns, many other formulas exist. And since every formula generates slightly different results, it’s impossible to obtain an objective measure of your ROI. Because of this, investors should always stick to the basic formula when possible and check which formula was used when comparing the results of other companies.

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From recovery loans to embedded financing, Kriya offers a wide range of funding options to business owners up and down the UK. We truly believe that small businesses are the future and that cash flow barriers shouldn’t prevent them from reaching their potential. If you’re serious about investing in your businesses long term growth, you can learn more about what we do here .

FREQUENTLY ASKED QUESTIONS (FAQS)

What is a return on investment (ROI)?

ROI is a financial metric that measures the return on an investment relative to its cost. It helps companies and individuals to compare the efficiency of different investments, so they're able to understand if the rewards will outweigh the risks. Generally speaking, the lower the cost of investment and the higher the net profit, the more positive the ROI.

How do you calculate your return on a business investment?

The basic ROI formula is ‘ROI = 100% * net profit/cost of investment'. In accordance with this formula, to calculate the ROI, you need to determine your investment's net profit and its total cost. Then, you divide the net profit by the total cost and multiply this result by 100. The figure you are left with is your final ROI ratio.

What is an annualised rate of return?

An annualised ROI represents the average of an investment's earnings over a year. It's expressed as a time-weighted annual percentage, and types of returns can include capital, interest payments and dividends. The calculation also includes adjustments for compounding interest, so many experts believe it is more accurate than the basic formula.

How does a business analyse its ROI ratio?

Since the nature of each investment differs so heavily, there is no benchmark of what a ‘good’ or ‘bad’ ROI ratio is. There are, however, other ways you can interpret your results. By researching other small businesses in your industry and recording the average ROI on their investments, you can gauge what a standard return may look like for a company similar to yours. You can then compare your results against this figure to establish your business’s performance.

What are the benefits of the return on investment (ROI) metric?

Return on investment (ROI) formulas are an indispensable tool to businesspeople all around the globe. This is because they are a reliable way to measure the profitability of an investment, they help to keep financial risks to a minimum, and they are simple and easy to use.

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Return on Investment (ROI)

By Entrepreneur Staff

Return on Investment (ROI) Definition:

A profitability measure that evaluates the performance of a business by dividing net profit by net worth

Return on investment, or ROI, is the most common profitability ratio. There are several ways to determine ROI, but the most frequently used method is to divide net profit by total assets. So if your net profit is $100,000 and your total assets are $300,000, your ROI would be .33 or 33 percent.

Return on investment isn't necessarily the same as profit. ROI deals with the money you invest in the company and the return you realize on that money based on the net profit of the business. Profit, on the other hand, measures the performance of the business. Don't confuse ROI with the return on the owner's equity. This is an entirely different item as well. Only in sole proprietorships does equity equal the total investment or assets of the business.

You can use ROI in several different ways to gauge the profitability of your business. For instance, you can measure the performance of your pricing policies, inventory investment, capital equipment investment, and so forth. Some other ways to use ROI within your company are by:

• Dividing net income, interest, and taxes by total liabilities to measure rate of earnings of total capital employed.
• Dividing net income and income taxes by proprietary equity and fixed liabilities to produce a rate of earnings on invested capital.
• Dividing net income by total capital plus reserves to calculate the rate of earnings on proprietary equity and stock equity.

More from Operations

Capital equipment.

Equipment that you use to manufacture a product, provide a service or use to sell, store and deliver merchandise. This equipment has an extended life so that it is properly regarded as a fixed asset.

Fulfillment

The process of receiving, packaging and shipping orders for goods

The process of bringing goods from one country for the purpose of reselling them in another country

Depreciation

An expense item set up to express the diminishing life expectancy and value of any equipment (including vehicles). Depreciation is set up over a fixed period of time based on current tax regulation. Items fully depreciated are no longer carried as assets on the company books.

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How to Calculate Your Return on Investment

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You invested in property a few years ago, and now you want to know: Was that investment worth it? To find out, you need to calculate your return on investment (ROI). We walk you through how to use the ROI formula and also where you can go for easy calculations.

The return on investment formula

To calculate your ROI, divide the net profit from your investment by the investment's initial cost , then multiply the total by 100 to get a percentage:

ROI = (net profit / investment cost) x 100

To calculate your net profit, subtract your stock's current value from the initial investment price.

Let's say you bought $5,000 worth of stock in a company. In three years, you sell it for $7,000. First, find your net profit: $7,000 – $5,000, so $2,000. Then divide your net profit by the initial investment cost of $5,000, multiplying by 100 to calculate the investment ratio:

ROI = ($2,000 / $5,000) x 100

In this case, you've earned a 40% return on investment—not bad.

The higher the percentage, the better your return on investment. A negative percentage, though, means you actively lost money on this investment.

Annualized return on investment

The ROI formula doesn't account for the amount of time you have a stake in an investment, otherwise known as the holding period. That also means the ROI formula doesn't account for compound interest , or the interest you accrue each year that contributes to the next year's interest . (Another way to think of compound interest is the interest you earn on interest .)

If you want to know how much you're earning year over year, accounting for compound interest, use the annualized return on investment formula:

Annualized ROI = [(1 + ROI) 1/n – 1] x 100

In this formula, n means the number of years you're holding the investment, or the holding period.

Let's go back to our example above, where you determined that your ROI after three years is 40%, or, numerically speaking, 0.4. If you're calculating the annualized ROI, your formula should look like this:

Annualized ROI = [(1 + 0.4) 1/3 – 1] x 100

Following this formula, your annualized ROI is about 11.87%.

Additional ROI calculations

A company's cash flow fluctuates from year to year, and so does your stock's value—which means you likely aren't going to earn the exact same ROI every single year. If you want a more detailed understanding of your ROI, then calculating your ROI and annualized ROI aren't enough. Instead, you need to make a few more calculations:

• The compound annual growth rate (CAGR), or annualized total return, measures your investment's potential growth rate year over year, assuming an average rate of growth and a reinvestment of funds at the end of each term.
• The internal rate of return (IRR) is a much more complicated equation that accounts for more detailed cash inflows (and, alas, outflows) over the course of an investment.

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Tools for calculating your ROI

You can calculate your ROI by hand, but why bother? Online ROI calculators can simplify the process—just input the numbers and the calculator will crunch them for you. Alternatively, run the numbers through spreadsheet software like Excel or Google Sheets. Some investing sites offer free Excel templates to make calculating ROI (and more complicated financial metrics like IRR) a little simpler.

The takeaway

The return on investment equation doesn't tell you how much you're guaranteed to make on a given investment—no equation can tell you that for certain, since the lack of certainty is a key part of the game. Still, it's a useful calculation to have under your belt whether you're investing in stock for the first time or trying to determine if your next investment property will be worth what you paid for it.

Want more financial metrics for evaluating an investment? Check out our piece on another key financial ratio: the future value formula .

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How to Calculate the Return on Investment for Your Startup

How to calculate roi for a startup.

Return on investment is a typical business concept for calculating the financial benefits of an investment. To measure the performance of a business, managers and executives often calculate the return on investment (ROI). This value can be used to define anything from a monetary return to an efficiency ratio and is typically expressed as a percentage or a ratio. 

In this article, we will go through the definition of Return on Investment, the importance and benefits of ROI calculations, and teach you how to calculate ROI for your startup.

What is ROI?

Return on investment is a performance measure that can be used to evaluate the effectiveness or profitability of an investment or compare the efficacy of several different investments.  The return on investment, or ROI, is an attempt to directly evaluate the amount of return on a specific investment in relation to the cost of the investment.

A company can measure the profitability of any expenditure by calculating the return on investment. Buying pens or fixing an employee's desk are expenses that may not have a direct or monetary return on investment (ROI), but they are still part of a more significant investment. Spending money on a graphic designer to make commercials, a photographer to capture headshots, or a web developer to redesign the company's website are all investments with the potential for a return.

Return on investment (ROI) is a standard metric to assess a project's viability.  An angel investor , for instance, might want to calculate the expected return on their investment before putting money into a company. Divide the annual income or profit by the initial or current investment to estimate the return on investment (ROI).

What is ROI used for?

The return on investment (ROI) metric can assess numerous investment choices by contrasting them to their starting prices. Calculations of return on investment (ROI) are frequently used by businesses when considering previous or prospective investments.

Individuals can analyze their investments and compare one investment to another, whether a stock holding or a financial stake in a small firm, by calculating the return on investment (ROI) and comparing the two.

Sometimes, businesses will employ a project's return on investment (ROI) as a metric of its performance. Before committing to an advertising campaign, a business owner will want to know what kind of return they can expect on their investment. A company's return on investment is considered positive if the money earned is greater than the sum spent.

When calculating annualized ROI, the average yearly return on investment realized during the investment term is what you're after. This is useful because the return on investment (ROI) doesn't account for the time spent holding an investment when calculating ROI. The rate of return on an annualized basis is helpful for comparing the results of various investments across different time frames.

What Are Examples of ROI Calculations?

Businesses might encounter difficulties calculating the investment amounts for each part of the ROI equation.

Considerable investment in new computers, for instance, has several deployment expenses that must be calculated and accounted for. The company must calculate the total cost of ownership, which includes the purchase price, any applicable taxes and shipping fees, any consultation or support fees paid, and the cost of initial installation and ongoing upkeep.

After that, the company would need to determine its net profit for a specified time frame. Hard monetary gains from enhanced efficiency and decreased upkeep expenses relative to older computer systems may contribute to these bottom-line gains.

Thus, a company can compare the return on investment (ROI) of two different computer systems by factoring in upfront expenses and long-term benefits. Which of these two computers, then, is the better financial bet?

At the end of the specified period, the company may use actual data for the total net income and the entire investment cost to determine the ROI. The computer implementation can be gauged by comparing the actual and predicted ROI.

What Are the Benefits of ROI?

When making decisions for your business, knowing how investments affect your profits and your business is essential and beneficial.

There are many benefits to calculating ROI for your business . Let's take a look at some.  

• It's easy to figure out how to calculate return on investment. It only requires a few numbers that may easily be found in any set of financial statements or balance sheets. You need a few business metrics, like net profit and the amount of investment required, which will give you a quick idea of your initial investment.  
• It's easy to figure out what your ROI means. If the number is positive, you made money on this investment. If the number is negative, it means you lost money. ROI is easy to understand, even for people who aren't accountants. Because it is so widely used and so simple to calculate, it enables more accurate comparisons between various companies regarding their investment returns. This makes the calculation results a valuable metric to use when talking to investors.  
• ROI can be worked out for several different investments or your business. This lets you see what parts of your business have been helped by a particular investment, like a marketing campaign that brought in more money or a second location that helped you sell more. As we mentioned, it is a metric used to measure the success of an organization's financial decisions for a specific department or division. The improved metric will help determine which businesses or teams are the most profitable.

How Do You Calculate ROI?

For big companies, figuring out ROI can be a difficult task. But the process is easy for people who own small businesses.

For example, to determine the return on your first business investment, you need to know how much you put into the business and, if you have any, how much long-term debt you have now.  You will also need to know how much money you made after taxes for the year. All this information is in your accounting software, your spreadsheet, or your accounting journals.

There are several ways to figure out the ROI. Most people use net income divided by the total cost of the investment = Net income / Cost of investment x 100.

Here is an example of how a business might calculate its return on investment.

Let's assume that Joel has an e-commerce business. He runs an e-commerce business that sells dog-related products. He wants to raise awareness and boost sales before the holidays, so he buys some social media ads. He spent a total of $2,000 on ads on social media sites to get people to visit his site during the holidays. 

After the end of the holiday shopping season, Joel does the math on his net profit and discovers that the online store he owns has made $10,000 more money than it did during the same time the previous year. After that, he can calculate the advertising's return on investment using the following formula:

ROI = (10,000 / $2,000) x 100 = 500%

This indicates that Joel made five dollars more in net profit for every dollar he invested in advertisements. He can now start to budget for increased expenditure for the upcoming holiday season now that he has seen such a high return on investment (ROI).

Why Is ROI Important for Your Business?

Making smart financial decisions is essential for the success of your business. Your return on investment (ROI) is a crucial metric that can help you compare different investment strategies and determine which will make you the most money.

You can use this metric to make business decisions like investing in a new business or buying a new property to make room for growth.

You can A/B test ways to invest, like on social media platforms. This could be a comparison between Meta and Instagram in terms of your return on investment. For example, you could put the same amount of money into advertisements on each platform, which may give you a better return.

By comparing and evaluating this metric across different investment channels, you can make better financial decisions, get the best return, and grow your business.

How to Increase Your ROI

Depending on what kind of investment you want to make, the best way to increase returns will vary. But there is a way you can try before investing to increase your chances of getting a high return on your money. Eurokick is the solution!

Eurokick is ready to help your startup calculate your return on investment and increase your ROI. Eurokick supports and monitors your startup in every way possible. Contact us and get more information now!

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ROI Templates and Calculators For Many Disciplines

By Andy Marker | October 11, 2018

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In this guide, you will learn about the role of ROI, its formula, why you would use it, the four methods to easily calculate it, and additional methods to break down work. Download the essential Excel templates to perform a variety of ROI tasks, including content marketing metrics, website ROI analysis, healthcare quality initiative ROI, event ROI calculator, PLM ROI calculator, IT ROI, cost avoidance calculator, and TCO ROI.

Cash Flow ROI and Template

Cash Flow ROI (CFROI) is a proxy for a company’s economic return. This return is compared to the interest rate charged to commercial banks from the Federal Reserve’s standard (the discount rate), to see if there is value-added potential. CFROI is the average economic return in a year on all of a company’s investments. Enter your variables in this template to determine your company’s CFROI.

‌ Download Cash Flow ROI and Template - Excel

In this template, you will enter the following variables:

Cost Fixed Assets : These are assets not expected to be used up or converted into cash within a year. They can include property, plant, and equipment (PPE), and may be used to generate income.

Cost Non-cash Working Capital : The sum of inventory and receivables

Cost Capitalized Operating Leases : Posted as an asset on the balance sheet, this type of lease expenses the lease payments.

Cost Accumulated Depreciation on Assets : An asset account with a credit balance.

Years Average Life of Assets : The accumulated depreciation divided by the current depreciation expense.

Percent Inflation Rate During Asset Life (Annual) : The change in purchasing power.

Years Remaining Life of Assets : This is calculated based on when the asset went into service and the preferred depreciation method.

Percent Salvage Value at End of Life : The resale value at the end of the asset’s useful life.

Cost Current Earnings Before Interest and Taxes (EBIT) : All incomes and expenses, except interest and income tax expenses.

Cost Current Depreciation : The deduction that helps spread the cost over many years.

Percent Marginal Tax Rate : The tax percent of your income based on your tax bracket.

Percent Nominal Cost of Capital : The rate of return needed to persuade your company to make a given investment.

Below are the outputs from these inputs:

Adjusted gross investment (for inflation)

Gross cash flow

Expected salvage value

Years remaining asset life

Cash flow return on investment (CFROI)

Cash flows per investment year

NPV and IRR Calculations and Template

Net present value (NPV) and internal rate of return (IRR) are metrics used to estimate ROI. NPV is the dollar difference between the present value of cash inflows and outflows over time. Companies use NPV as a tool to help them decide if an investment will provide long-term value, to compare different investment options, and to decide whether they should introduce a new product. IRR is the calculation that estimates the percent profitability of possible investments by taking the NPV equal to zero.

NPV looks at each cash flow separately, even when the discount rate is unknown. An NPV greater than zero makes a project financially worthwhile. IRR compares projects using one discount rate, predictable cash flows, equal risk, and a shorter time. IRR does not account for changes in the discount rate, which at times makes it a poor metric. Further, if there are a mix of positive and negative cash flows, IRR calculations are not effective. To calculate your company’s NPV and IRR, use this template.

‌ Download NPV and IRR Calculations and Template - Excel

In this template, you will input the following:

Discount rate

Series payment type (None, Uniform, Gradient, or Exp Grad)

Value (A, G, or Eo)

G % for Exp Grad

The number of periods

For each period, the values

Below are the outputs for this template:

The sum for each period

The different series for each period

NPV for each series

NPV for each label

IRR for each label

Cost Avoidance Calculator Template

Preparing for a conference or large event is a big commitment for a business. There are direct costs, such as airfare, registration, and accommodations, and indirect costs such as the hours of preparation. Cost avoidance includes actions or event-substitutions that reduce future costs, such as planning virtual conferences, trainings, or parts replacement before failure (and subsequent damage to other parts). Cost avoidance activities may incur higher immediate costs but save money — sometimes totaling extreme savings — over time. This is a different concept from cost savings , in which you actually save the money you plan on spending. Lower spending, investment, or debt levels is what saves money.

Use this template to calculate cost avoidance as ROI. This calculator has a variety of event scenarios, including training, conference, and an in-person event. These costs are compared to a virtual briefing, a virtual conference, and a virtual large event, respectively. With your input, you can calculate the costs per participant for each, the cost avoidance factor per participant, and the avoidance factor.

‌ Download Cost Avoidance Calculator - Excel

Marketing ROI and Content Marketing Templates

Marketing is a huge expense for any business. Whether your company invests in a comprehensive program that rolls out print and television ads as well as a social media presence, or just has a Facebook page, you should know the worth of your content over time. Sirius Decisions stated in 2013 that 60 to 70 percent of content goes unused. The cost of creation itself involves the per hour cost of each person by the number of creation hours involved, plus any actual content expenses. Having the ROI for marketing content can help motivate your staff to use it.

The marketing ROI (MROI) is simply the revenue generated from your content minus the cost to produce your content. This is a simple calculation, but some professionals caution that marketing professionals should define how and what they have measured in order to signal to stakeholders whether they are defining short-term channel-specific ROI or informing for long-term budget or strategic decisions. In this marketing ROI  template, you will find space for multiple marketing initiatives in order to compare their relative value.

‌ Download Marketing ROI Template - Excel

To use this template, input the following:

Total initiative cost

Total circulation/audience

Response rate (percent of generated leads by the audience)

Conversion rate (percent of leads which will purchase)

Average revenue per sale

Average profit per sale

From these inputs, you will get these outputs:

Total costs of all initiatives

Total cost/audience for all initiatives

Average profit per sale for all initiatives

Number of leads generated

Number of sales

Total revenue uplift

Total profit uplift

ROI percent

Cost per lead

Cost per sale

Break even response rate

Break even conversion rate

Break even profit per sale

The demand for marketing measurement and reporting is rising with marketing costs. There are many metrics that should be reported to show the success of your marketing program. Many professionals are not comfortable communicating their impact on the bottom line metrics to get the support they need. The key metrics that every marketing person should be comfortable reporting include the following:

Total Reach : The number of people your company can reach across your different networks and platforms. Each is a potential client.

Reach by Channel : The number of people following or subscribed per channel.

Total Website Visits : The number of people who visited your website in a period of time. This metric shows how well your inbound marketing is directing people to your website, which is also tracked month over month (MoM).

Website Visits by Source : This metric reports where people are coming to your website from to determine how well specific campaigns are working.

Total Leads Generated : This metric shows the interest your campaign generates for the products or services. It is one of the strongest ROI indicators.

Leads Generated by Source : This metric shows the channels that produce the most leads, which allows you to focus on the most valuable sources. 

Total Customers Driven by Marketing : This metric tracks which marketing campaigns are yielding the most customers.

Marketing Generated Customers by Source : Track the source of the customers acquired by each campaign. 

Conversion Rates

Visit to Lead Conversion Rat e: This measures the percent of people whose website visit becomes a new lead for sales.

Lead to Customer Conversion Rate : This measures the percent of people moving from leads to customers. This metric helps determine if your campaigns are generating sales-ready leads.

Visit to Customer Conversion Rat e: This is the overall funnel: whether your traffic generated turns into customers.

Content Marketing Metrics Template

Use each of the above five categories to record metrics for reporting with this template. It provides a space for each metric and ready-made graphs to add to your marketing deck so you can present your success. Fill out the reach, visits, leads, and customers templates, and your conversion rates template will automatically fill from your data.

Download Content Marketing Metrics Template

Excel | Smartsheet

Website ROI Analyses and Template

Google Analytics 4 (GA4) can help you determine the financial value of your content so you can calculate ROI. Use GA4 to track the URLs from all your web materials, such as your website, Facebook, newsletters, and any other sources. You can track who comes to your site and the path they took to get there. For example, you can get a count of how many times someone accessed your site from a Facebook post, or how many times your content was downloaded from your site.

To set up Google Analytics 4, start by either signing in or creating an Analytics account. Set up your GA4 property, add a data stream and install your Google Analytics with Google Tag Manager. Here’s how to set up Google Analytics 4:

Create an Analytics account, unless you already have one.

Create a Google Analytics 4 Property:

Go to the Admin section of your Google Analytics 4 interface and then click Create Property .

Enter the name of your property, choose your company’s country, reporting time zone, and the main currency your business operates.

Press Next , and answer several questions. 

Then select your business objectives.

Click Create .

Configure your first Data Stream: 

In Admin , in the desired Property column, click Data Streams > Add stream . 

Click iOS app , Android app , or Web . In this article we focus on the Web stream.

For the Web , enter the URL of your website (the protocol https is already selected) and enter the name of your website.

You have the option to enable or disable Enhanced Measurement feature. By default it is enabled, but you can disable it if you want. 

Press the Create Stream button.

Install Google Analytics 4 with Google Tag Manager (GTM):

Install GTM on your site.

After that, go to GA4 > Admin > Data Streams , select your Web data stream, and copy the Measurement ID .

Go to your Google Tag Manager container > Tags > New and choose Google Analytics: GA4 Configuration .

In the Measurement ID field, enter the Measurement ID you copied in the GA4 interface.

In the Triggering section, select Initialization – All Pages .

Name the tag and save it.

Test the GA4 installation:

Click Preview in the top right corner of the GTM interface.

Once you enable the preview mode, you should see the new GA4 tag among the tags that fired. If your tag didn't fire, check your tag's trigger settings.

Publish your changes in GTM by clicking the Submit button in the top right corner and then completing all the other steps that the user interface asks you to do.

Website ROI Calculator Template

You can add Goals in your analytics page to determine how well your pages are performing. Import the information from your website or app into this website ROI calculator to determine the ROI for your web-based traffic. You’ll find a full website campaign overview in a roll-up sheet, which tells you which campaigns are the most successful so you can compare them.

‌ Download Website ROI Calculator - Excel

In this calculator template, you will find spreadsheets for each of your campaigns. The inputs for each campaign are as follows:

Date figures updated

Name of staff updating

ROI goal (percent)

ROI goal (days)

Site launch date

Number of unique visitors

Net number of unique visitors

Number pageviews

Development costs

Concept development

Operation, support, hosting

Internal resources

Other costs

Marketing costs

Calls to action and revenue

From these inputs, the following are your outputs:

Days ste ran

Average pageviews (pages per visitor)

Total development and operations cost

Total marketing cost

Total development operations and marketing

Total revenue

ROI percent (greater than 0 percent is a profit)

Revenue/costs (percent investment returned)

Days to break even (at the current rate of activity)

Days to reach ROI goal (at current rate)

Prognosis: ROI based on the time period listed and the current rate

Another way to figure out the revenue from your web content is to look at your online sales. Each time you sell products on your website, you can use your digital content to push customers to your sales pages. Each time you post a blog article, there should be links your customers can follow to reach your products. From these page visits, look at the revenue earned over the period and the number of visits from your content.

There are other programs you can use to manage your social media and marketing content that you can purchase as well. Some of these plug into your existing software to make your reporting easier. It’s worth reviewing their features and ease of use for your company if your revenue is dependent on your social marketing content. Some of these apps include Hootsuite, Hubspot, Buzzsumo, and Quintly.

Healthcare Quality Initiative ROI Templates

With the cost of health care skyrocketing, state-sponsored and private health plans should be able to prove their ROI to measure the effect of their quality improvement initiatives. These seven worksheets can help you prove the ROI of your quality improvement initiative:

Initial Costs : In this template, the costs of the personnel involved in the initiative are laid out, as well as any additional costs such as supplies, contracted services, and equipment. The total costs of the initial investment are calculated. This is Year 1 costs.

Operating Costs : This spreadsheet template pulls data from your initial costs spreadsheet for Year 1 and allows you to add data for consecutive years of your initiative. You can add and adjust for additional staff and known costs, and then the worksheet calculates the total costs for each year.

Claims-Intervention : Data from claims is used to estimate savings per year. Inputs for this spreadsheet include the actual payments from each claim category and the estimated savings by claim category for each year, the monthly membership for the initiative, and the number of months in the year the initiative was operational.

Claims-Control : Data from a control group of claims (without the intervention) shows a difference in the intervention versus changes that are an artifact of other reasons. It is important to maintain a control group to show that improvements come from your initiative and not from other or natural progressions.

Claims-Incremental : This spreadsheet compiles data from your claims-control and claims-intervention spreadsheets to determine your savings, and whether these savings are relevant to your quality initiative.

ROI : This spreadsheet automatically compiles data from your other spreadsheets and calculates the total discounted annual investment costs, the total discounted annual savings, and the ROI summary, which includes undiscounted annual net cash flows, cumulative ROI, net present value, and internal rate of return.

ROI-Incremental : Like the ROI spreadsheet, this template calculates the savings and ROI summary, but for incremental data.

‌ Download Healthcare Quality Initiative ROI Templates

Project ROI Templates

There are many projects that require you to calculate ROI. Some of these may be due to technology or software system changes that can get extremely expensive, so being able to report ROI to your stakeholders becomes critical.

IT ROI Calculator Template

The following is an IT ROI calculator for any basic IT initiative or project. This calculator provides columns to include data for up to eight years, but you can add more years as columns. Inputs include the following:

Cost savings by year

Selection costs

Implementation costs

Ongoing costs

Project discount rates

The outputs from this include subtotals of each, cash flow, cumulative cash flow, and results. The results include the following:

Total project cost savings/income

Total project expenditures

Net project savings/income

ROI (after five years)

Net present value (NPV)

Internal rate of return (IRR)

Payback (breakeven) year

For ease of reporting, charts have been included that automatically show yearly project cash flows, overall project implementation analysis, and overall project cost savings/income analysis.

‌ Download IT ROI Calculator

ROI Calculator for Product Lifecycle Management (PLM) Systems

Another software ROI calculator is for product lifecycle management (PLM) systems. Inputs for this calculator include the following:

Organization total revenue

Three-year total investment

Cost of capital

Direct cost of goods

Direct cost of goods benefit

Current operating margin

Current new product revenues

New product growth

Total research and development cost

Product development savings

Scrap reduction

Total inventory cost

Total labor cost

ECO labor cost/annum reduction

Percent total investment per year

Outputs from this calculator include the following:

Investment amounts

Part standardization benefit

TTM and collaboration

PDM savings

ECO reduction savings

Rework savings

Net cash flows

Use the diagram that visually shows the NPV of cumulative cash flow to update your stakeholders.

‌ Download ROI Calculator for Product Lifecycle Management (PLM) Systems

Business Case and Event ROI Template

Building a business case helps your team or company justify the funding in any proposal. This is the expected benefit from any undertaking, whether you are making a case for replacing old equipment or starting a fresh marketing program. Using ROI and other cash flow metrics are an excellent method to help you build your business case — especially in the case of technology investments where financial managers can identify expected costs and benefits to calculate ROI. For example, you may want to make a business case for an event your company is considering hosting. Based on the ROI of past events, you can give your company information on what level of event is relevant for their goals. For example, you can make a case for a large formal event rather than a small less-costly cocktail party if the ROIs are markedly different, and the large event generates more customers. Use this simple event ROI calculator template to discover what ROI your past events yielded by inputting the number of attendees, costs, and deal information. The outputs then give the event cost per person, the ROI, and the ROI percent.

‌ Download Business Case and Event ROI Template - Excel

Justification and Total Cost of Ownership ROI Template

In the same vein as proving a business case, a business plan must have some type of economic justification to provide stakeholders with the knowledge that they are making sound policy and finance decisions.  ROI is an appropriate choice, although it does not consider the intangible or fuzzy costs and the benefits that a cost-benefit analysis (CBA) might reveal. However, since those measures are fuzzy, they may not accurately represent the data anyway.

Total cost of ownership (TCO) helps assess costs across an enterprise for products or systems. Mainly used in IT, TCO generally includes not only the hardware and software, but the acquisition, management, support, expenses, training, and any other productivity losses to be expected during implementation. This calculation is made using data over a number of years, so you can present the TCO lifecycle. TCOs can be used to comprehensively justify new software purchases — especially since they are generally such expensive prospects. TCO is the negative data in an ROI equation that shows what you are spending.

Additionally, many professionals interested in TCO also want cost avoidance data, or the positive data in an ROI equation. For example, with both TCO and cost avoidance, you can calculate the ROI of replacing a software system that performs some function that saves you money.

Use this template for such a scenario, where the TCO of a software system (such as a virtual briefing platform) and the cost avoidance of a virtual briefing are combined to discover ROI. You can also use the template independently to determine either TCO or cost avoidance. In this template, you will find space to input your direct and indirect costs across several years. Inputs include costs for the following: 

Implementation

Programmatic work

There is also space to enter cost avoidance data. The following are calculated from the input data:

Total cost of ownership/year

Total substitution cost avoidance

Total potential cost avoidance

Potential ROI

Potential ROI percent

Potential ROI/year

‌ Download Justification and Total Cost of Ownership ROI- Template – Excel

Simple ROI Templates

An ROI analysis can vary in the levels of its complexity. Regardless of the amount of data, the basic ROI formula details three steps:

Estimate the Cost : Costs may be hard or soft, depending on the project or event planned. Hard costs are simple and are anything that comes with a receipt, such as travel costs, registration fees, and entertaining costs. Each of these can be a line item when you build or use an ROI calculator. Soft costs are more complex since they can include the number of hours spent on preparing, attending, and following-up after the event. This can also include the time spent corresponding, researching, and traveling. Multiply these “soft” hours by the employees’ hourly rate from their base pay to calculate the soft cost. Combine the hard and soft costs for a  better representation of the cost estimate.

Estimate the Return : First, define your success metric. For a conference-type event, this may vary, but consider the type of event and your company’s function in the marketplace. Your team should help you define your success metrics. Defining success metrics is part art, part science. If the metrics are developed, they should align with your strategic plan and your key performance indicators (KPIs) .

Compute ROI : Calculate ROI by dividing the activity return by its cost. Below is another formula you may follow:

ROI = (Gain from investment – Cost of investment) / (Cost of investment)

Simple ROI Calculator Excel Template

The attached simple ROI calculator is an Excel template. ROI may be calculated in Excel, but there is no specific formula for it — it simply displays inputs and outputs to help you come up with the final number. In this template, you will find four different methods to calculate ROI. But, you will always need to enter either your original investment value or share price.

Download Simple ROI Calculator Template

The four methods in the above template include net income method, capital gain method, total return method, and the annualized method: Net Income Method: Divide net profit by total assets. Enter your original investment value and its net income, which is what was earned less the taxes and deductions.

Capital Gain Method : Subtract your cost base from your capital proceeds. Enter your original share price and the current share price.

Total Return Method : The actual rate of return on an investment over a period of time, including capital gains, interest, and any dividends. Enter the original share price, your dividends, and the current share price.

Annualized Method: This is the geometric average amount earned every year over a given time. It is geometric to show compounding. Enter the original share price, the sale share price, when you purchased the share(s), and when you sold them.

What Is a Return on Investment (ROI)?

Companies use ROI to gauge the profits from any type of investment, whether time, money, or energy. Return on investment (ROI) is a performance measure that can be calculated in simple cases through a formula or in more complex cases via a template with multiple formulas. Calculations occur when you input what is spent versus what is earned. It can also be an investment view of a company’s cash flow via an action they took. In other words, the benefit of an investment is divided by the cost to see if it was worth making. ROI has many interpretations, depending on the business industry. For many businesses, ROI is simply the measurement of financial gain or loss relative to the costs such as deductions, fees, labor, or resources.

In project management, ROI helps businesses determine whether they want to invest in specific projects, and in the case of several projects, to decide between them. In the case of long-term projects, businesses must take into account inflation and future income to accurately calculate ROI. In the case of some quality projects, the ROI may be difficult to calculate because it’s hard to turn non-quantifiable data such as ideas and good feelings into monetary values. For example, spending money to put in a new breakroom may make your employees happier and feel more positive towards their environment. However, it’s difficult to calculate the revenue of a new break room.

ROI is used as a concept and a specific formula. As a concept, it can measure profitability or efficiency. People refer to ROI when discussing what they get back for their input. However, ROI is a true metric that can be calculated as a ratio or percentage. The basic formula to calculate ROI is:

ROI = Net Profit / Total Investment *100

You would use ROI for several reasons:

Provide Quantifiable Value : ROI provides leaders with information about a project’s worth, and can help garner their support by removing uncertainty and subjective benefits.

Build Stakeholder Support : When a project is up for decision (whether or not it gets approved), calculating the ROI gives stakeholders the information they need to either provide or deny their support.

Show Additional Benefits : Calculating ROI becomes a forcing function for staff to determine benefits they may not have considered at the start of a project.

Prioritize Projects : Many companies use ROI as a metric to rank their projects.

However, ROI modeling has some limitations. Some models do not adequately factor in accurate-enough costs and returns. Soft, or intangible, costs are difficult to assess. Another issue is that the costs and returns of a project may not match predictions. Finally, some ROI models may not give more than a financial measure of a project, giving stakeholders an inadequate measure of return or making the project’s actual return misunderstood.

There is more than one way to model ROI, and different analysts can model differently, possibly mischaracterizing the outcome. Therefore, stakeholders and business leaders should ask not only the ROI of a project but how it was modeled. The effects that a project has on more than just the business are sometimes left out. For example, social return on investment (SROI) is a modern metric that considers social, environmental, economic, and environmental outcomes in projects. SROI uses impact mapping, which is a strategic planning technique.

The ROI Formula

ROI is calculated by subtracting the project cost from the financial value. Financial value is what the project pays you back, but occasionally there is uncertainty in assigning monetary values to outcomes. To do so, break the values into known components and define them. These components usually include time, volume, and dollars for both the present and the project, such as this formula:

Financial value = TVD present – TVD project

V = volume, quantity of units

D = dollars/cost

Present = the current value

Project = the value of a successful project

One example of using this formula considers a project that decreases the production cycle by 20 percent. The team calculated that the production cost of their product was $5,000. The time to produce one unit was 10 hours, with a $90/hour wage and $41,00 worth of materials. For the production of 500 of these units, the product line cost was $2.5 million.

The project decreased the production cycle time by 20 percent, from 10 hours to eight hours, while keeping the remaining costs the same. The new production cost is $4,820 per unit and $2.41 million for the yearly product line. Therefore, using the formula above, the projects financial value is:

Financial value = $2,500,000 - $2,410,000 = $90,000 in annual savings

The project cost is the second component of the ROI formula. There are two main variables that compose project cost: work decomposition over time and cost of the work. The work decomposition over time breaks down the work or tasks into the most granular level possible, and in best practice by chronological order. In project management, this may also be known as the work breakdown structure (WBS). Here’s an example:

Insert Chart Here

For more information about WBS, see “ Getting Started with Work Breakdown Structures (WBS) .”

The costs of the required work need the practitioner to consider certain factors when they allot costs. Even these factors they can vary widely, they can include the following:

Any rentals/leases

Resources, such as workers

Hours to complete the work

Capital costs (hardware/software)

Once you have these costs defined, you can add them to your WBS, such as in the following example:

Some other methods of breaking down work include the following:

Gantt Charts : These are the WBS over time, and put your tasks into phases of work. To create your own, see “ How to Create a Gantt Chart in Excel .”

Process Maps or Process Flow Diagrams : These show the project work as workflow steps. This is a visual representation of your work. For more information on process maps, see “ Essential Guide to Business Process Mapping .”

These are all helpful tools to cost out your projects, but practitioners should also consider the following:

One-time Costs Versus Costs Over Time : Some equipment may be a one-time purchase or a rental over years. Include those costs over the period to get accurate ROI figures.

Consider What the Opportunity Cost May Be : When you have more than one project to compare, there may be savings you can attribute back to your company. Remember that the opportunity to perform the project may have value.

Estimate Liberally : Whenever there is a gray area for cost estimation, estimate higher. Cost overruns delay projects and erode confidence.

Once you have calculated all the financial values and project costs, the ROI formula is simple. Let’s assume in the following example that there is a one-time cost of $400,000 for our project to decrease the production time by 20 percent. In this example, Year 5 breaks even, and as the company goes forward, there is an appreciable saving:

ROI and Returns-Based Analysis

Another calculation that is important in a discussion of ROI is returns-based analysis . The financial industry performs style analyses when they are trying to determine the type of investment behavior either an investor or a money manager is using. Two distinct types of styles are holdings-based and returns-based. Returns-based is more widely used by financial professionals because monthly input data is readily available. The returns-based analysis compares three to five years of a portfolio’s monthly returns to the total returns of various style-based indexes. Inferences can be made about how closely the portfolio resembles the different indexes. In other words, a fund manager or investor professes that they will invest in a certain manner. A returns-based analysis is a model that shows if they have done so. Although not directly calculating ROI, a returns-based analysis can help determine whether your investment manager is worth their cost.

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The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. 

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

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A Simple Guide to Marketing ROI [Formula & Examples]

Updated: February 01, 2021

Published: July 17, 2019

Whenever you launch a new marketing campaign, you should test whether the cost of the project is helping or hurting your company. To determine something's profitability, many marketers look at ROI -- or return on investment. At the most basic level, ROI compares the amount of money you spend on a project with the amount of revenue you gain from it. 

Ever wonder why we never saw a third sequel to the Jim Carrey classic, Bruce Almighty ? One major reason could be the disastrous ROI of 2007's Evan Almighty .

A few years after 2003's Bruce Almighty grossed over $484 million , a sequel was made that starred The Office 's Steve Carell . 

In 2007's Evan Almighty , God, played by Morgan Freeman, commands Carell to build an arc like the biblical figure, Noah. The movie's marketing, award-winning cast, and special effects might have seemed promising at the time. But its production costs led to it having the biggest budget of any comedy film at $250 million . After the studio, cast, and crew spent huge amounts of time and money on the film, it only made a dismal $67 million in its first two weeks of release.

In comparison, Bruce Almighty, which had a budget slightly over $80 million , made nearly the same amount in its opening weekend. 

While this example looks at ROI on an incredibly large scale, the strategy of measuring your returns can be incredibly helpful to marketers or small businesses as they learn which tactics are and aren't worth repeating.

What's a good ROI in marketing?

The goal of ROI is to make more than a dollar for every dollar you spend on a marketing campaign. What's considered a "good ROI" can vary based on the type of marketing strategy, your distribution channels, and your industry. 

Determining one overall marketing ROI benchmark is challenging because all marketing tactics are different.

Marketing Reporting Templates

Excel, PowerPoint, and Google Drive Templates to Make Your Monthly Reporting Faster and Easier

• Track leads.
• Measure CVR.
• Track channel performance.

You're all set!

Click this link to access this resource at any time.

When dealing with an online ad strategy like PPC, where ROI data is usually tracked automatically, you might be able to easily see how your ad's return compares to others that are similar. Platforms like Google Ads also have years of extensive data to back up their reported 800% ROI benchmark.

If you're dealing with other strategies, like content marketing, it might be hard to tell if your blog posts, podcasts, or videos are leading directly to a purchase -- especially when the content isn't on or linked directly to a landing page.

In fact, the Content Marketing Institute says that determining ROI has felt like a mystery to marketers for decades. Although the invention of tracking URLs and other technology has helped to determine the success of content, CMI still suggests looking at ROI from a long-term perspective and factoring in non-financial gains including audience growth. 

For most businesses, one good way to set a "good ROI" benchmark for each marketing strategy is to look at the return from similar tactics you've tried in the past, as well as your current sales numbers. That information should help you create ROI benchmarks and goals that are realistic for your company.

When it comes to calculating marketing ROI, here's a simple formula you can follow:

Marketing ROI Formular

[((number of leads x lead-to-customer rate x average sales price) - cost or ad spend) ÷ cost or ad spend] x 100.

To use the marketing ROI formula, you'll need to identify the following things:

• Number of leads: How many people converted to a lead ?
• Lead-to-customer rate: What percentage of leads became a customer? If 12 out of 100 leads become a customer, your lead to customer rate would be 12% or 0.12.
• Average sales price: The average price of your product. An average can be helpful if you occasionally apply discounts or alter pricing in other ways.
• Cost or ad spend: How much did you spend on creating and promoting the marketing campaign? Here, you can factor in costs including ad spend , hourly wages of people who put time into the project , or costs related to producing content.

If you're terrible at math, don't worry. HubSpot customers can access an ROI calculator programmed with the same formula in our CRM. 

Aside from looking at hard revenue, you might also want to consider other non-financial elements when determining if a marketing strategy is successful. These could include follows or likes on social media, unexpected traffic to your website, or even a sense of increased trust from your customers.

While these things don't offer an immediate financial return, they might indirectly boost purchases or customer relationships later on. 

In this post, we'll give you a few tips on how to determine financial ROI for six common marketing strategies. We'll also describe a few fictional small-business marketing scenarios to show you how to use the ROI formula.

Marketing ROI Examples

Written content.

In our 2018 State of Inbound Report, we saw that 82% of marketers who blog see positive ROI in their Inbound Marketing strategy. 

Although it might cost less to produce a blog post than a video, written content can still cost you time and money. If blogging is part of your marketing strategy, you'll want to calculate time-related costs, production costs, and promotional costs into your total spend. To translate time into a dollar amount, track the number of hours that an employee spent on the project , then multiply that number by their hourly wage. 

For example, if a blogger is paid $20 an hour and takes four hours to write a promotional post, your total cost will be $80 in labor plus any costs related to promoting the post. 

If your blog links to a landing page, you'll want to use a tracking URL instead of a basic page URL so you can see how many visitors are coming to the page directly from the blog. 

Through tracking visits, leads, and customer conversions related to a blog post or article, you can see how efficient your strategy is. If you're creating content that generates ROI, but realize that writing time is taking too long, you might want to look for ways to streamline that process. If you're not getting ROI, you might want to make other adjustments to your plan or pivot to a new marketing strategy. 

A law firm that focuses on housing-related cases wants to gain more clients. They write five blog posts about tenant rights. Each post includes a tracking URL that links to a landing page where prospects can request a free legal consultation.

The firm spent $900 paying employees to draft five blog posts and $100 to promote it. The posts result in eight leads -- four of which become clients. The firm made an average of $2,000 per client.

Here's how their ROI would be calculated:

[((8 x 0.5 x $2,000) - $1,000) ÷ $1,000] x 100 = 700%

If this rate of return works for the firm, they might want to continue the strategy as is. If they like the strategy but want to increase the ROI, they might try creating a video to see if it's more effective or try to churn out posts at a higher frequency.

Email Marketing

While some might think email is outdated, it's actually still a key marketing tool. In fact, a business can make $38 dollars for every dollar they spend on an email. Although the ROI may depend on how big a mailing list is, the type of ad in the email, or the audience the email targets, this marketing strategy still might be worth a company's time.

While you might not need to track production time for a linked ad or CTA in an email, you'll still want to be tracking the traffic it drives to your site. Like the written content example above, we suggest using a tracking URL . 

Here's an example of how a company might measure ROI of email marketing.

A local dog daycare offers a weekly e-newsletter to customers and those who sign up on their website. An organic dog food company pays them $100 to place an ad that links to a purchasing page for their newest product.

Because the ad is linked with a tracking URL, the dog food company can see that it drove 50 visitors to their product page. Of those visitors, 20 placed the dog food in their cart and 17 purchased it. That ROI formula would look like this:

[((20 x .85 x $20) - $100) ÷ $100] x 100 = 240%

After seeing how much money they gained from the newsletter, the dog food company might continue to place ads in that weekly email. They might also want to branch out to other dog-related emails.

Video Marketing

A whopping 83% of marketers say video gives them strong ROI. But like any type of content marketing, you'll need to spend time and money on producing videos. You might even need to buy or rent film equipment or editing software. 

As you script and produce a marketing video, use these tips to film it affordably . You'll also want to keep track of the total cost of labor, equipment, and promotion. 

You should be sure to identify ways that you'll measure your video's effectiveness. For example, if you upload a video to social media platforms, you should include a tracking URL in the post caption that leads to the product's landing page. This way, you can see how many visitors were driven to the page because of the video post.

A sales AI software company is launching a new product that automates many menial tasks within the sales process. The company has a landing page for demo signups, but they haven't generated many leads. They think it's because the average sales person isn't understanding what this AI technology can do to help them. 

The team decides to make a demo video to show sales reps how the software works and how it can help them cut down on time-consuming tasks. The video is shared on LinkedIn along with a tracking link to the demo signup landing page. The video is also placed on the landing page itself.

It cost the company $300 to buy video supplies and $200 in labor to produce the video. After it was circulated, it resulted in five demo signups which lead to three purchases of the $2,000 product.

Here's their formula:

[((5 x 0.6 x $2,000) - $500) ÷ $500] x 100 = 1,100%

Since they made $1,100, the software company might continue making demo videos. Now that they've already made a one-time purchase of supplies, they also wouldn't need to calculate that cost into ROI of future projects. 

Sponsored Content

When a brand doesn't have time or bandwidth to produce their own branded media, they might pay another person, publisher, or company to create sponsored content . While staffing someone outside of your office will cost your company money, you might want to think of the extra hours your team will have to do other productive projects if they don't have to create content.

While you don't need to track labor costs of your own employees, you will want to use the ROI formula to see how the payment for the sponsored content compares to the amount of money you gained from the campaign.

A boutique wants to promote their new line of summer dresses, but they don't have time or equipment to make a video. They connect with a local fashion influencer and pay her $300 to do an Instagram video titled, "The Best Summer Dresses for 2019." 

They tell the influencer to place a tracking URL to the online store in her bio. She also directs viewers to the bio in the video's caption. Through the tracking link, the boutique can see that they've gotten 50 visits. Of those visits, 30 people put an item in their cart. Ten purchased one of the $50 dresses.

They use this formula to calculate their ROI:

[((10 x 0.33 x $50) - $300) ÷ $300] x 100 = -45%

Because they lost money on this, the boutique might want to move away from influencer marketing and invest on in-house strategies.

If they realized they gained more of a social media following, or more traffic than usual, they might still want to continue with the influencer. But to see if they can improve ROI, they might have her post the same video and link on more social platforms to see if gains more traction. 

PPC Campaigns

With pay-per-click, you're paying for every click your ad gets , even if it doesn't lead to a sale. While Google says its advertisers get a strong ROI , small businesses still waste 25% of their budget on poorly managed PPC campaigns. After your ad is launched, you'll want to closely monitor ROI and wasted spend to learn from and avoid major losses on an ad. 

There are a number of tools that can help you monitor and manage live PPC campaigns. You can also use our ROI formula to look at your ad's performance. Here's an example that shows you how:

An online gardening store wants to use a PPC ad to spread awareness of a new line of luxury lawn mowers -- which cost $1,000 each. 

On their first campaign, where the price isn't shown, they spent $1,000. Of the visitors they received, three placed the item in their cart and one made a purchase. In the next campaign, they included the price. They spent a total of $500. Of their web visitors, 12 placed the lawnmower in a cart and seven purchased it. 

To see how the PPC ad's script change impacted ROI, the garden store could use the formula for both campaigns. They could count users who carted the product as a lead. 

First Campaign: [((3 x .33 x $1,000) - $1,000) ÷ $1,000] x 100 = -$1

Second Campaign: [((12 x .583 x $1,000) - $500) ÷ $500] x 100. = 129.92%

From this comparison, the company is able to see how price transparency can cause more qualified leads to click on the ad. They also might realize that price transparency helps them avoid paying for the clicks of people who can't afford the lawn mower. 

Paid Social Media Promotion

If a company has an audience that regularly uses social media, like Facebook, Twitter, or Instagram , they might want to consider boosting one of their posts so it's promoted on newsfeeds of target audiences. 

With most social promotions, you'll be able to set a goal or audience target, a time limit, and a budget. Tracking your ROI can help you determine if the social boost strategy is working, as well as the types of posts that lead to the best return.

A lifestyle publication is trying to gain web subscriptions, which cost $10 a month. They decide to offer a one-month free trial to pull in leads. They create a post about the trial for Twitter which includes a tracking URL that leads to the free-trial landing page.

They boost the post for four days with a budget of $25 per day. In the timespan of the posted boost, they'd received 100 visitors and 20 signed up for a free trial. Of the 20, four become paid subscribers.

Here's the calculation:

[((20 x .2 x $10) - $100) ÷ $100] x 100 = -60%

Because the publication lost $60 and still has to honor the free subscriptions they gave out, they might decide to avoid boosting posts on this platform. If they haven't given up on a boosting strategy just yet, they might try paid promotion on another social platform next time. 

Best Practices of Measuring Marketing ROI

When it comes to marketing, determining ROI can seem tricky. While more traditional PPC and social media ads can provide more specific rates of return, it can still be challenging to link hard revenue numbers to marketing content like videos and blogs. 

Regardless of which marketing strategy you're using, monitoring the following factors can help you determine if your campaigns are really successful:

• Time: How much time did it take to create the marketing materials?
• Production Costs: Track the total cost of supplies, services, and software needed to create the campaign.
• Promotional Costs: Did you spend anything for promotion? If so, add that to your total costs.
• Page Analytics: Use a tracking URL to determine if your content is driving traffic to your product's landing page.
• Non-Financial Returns: Did you gain any social media engagement, unexpected traffic boosts, or other bonuses from your campaign? If so, this could still be helping your level of brand awareness.

For more on content-related ROI, check out this step-by-step guide that offers tips on how to track it and a list of tools that can help you. As you gain more customers, you might also want to check out this infographic that dives into ROI associated with great customer experiences.

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Check out some Return On Investment examples and how to use it to invest

ROI, Return On Investment , is one of the most used methodologies to gauge the possibility of making a profit on a project or business, or even compare several of them, in order to choose the best one.

This is because this formula is very practical to use.

Actually, it’s quite simple:

Return On Investment formula (as a percentage):

ROI =    RETURN – EXPENSES x 100    EXPENSES

We multiply by 100 so that the value is represented as a percentage, which is easier to understand, but not everyone does this.

So, to break the ice, let’s imagine a return on investment calculation example, merely illustrative.

Pedro, a little boy from a small country town, decided to earn some extra money for the summer vacation, and set up a small bar at the gate of his house to sell lemonade.

• Portable table and chair and insulated coolers borrowed from his father: $ 0.00
• Cardboard, pens and creativity to write advertising and price posters: $ 15.00
• 5 dozen lemons: $ 80.00
• 10 liters of ice cubes manufactured in the home refrigerator using mineral water (competitive advantage):    $ 20.00
• 50 liters of mineral water (comp. advantage) to make the lemonade: $ 100.00
• 2 pounds of sugar: $ 5.00
• 300 biodegradable paper cups (ecologically responsible = market positioning): $ 100.00

Total EXPENSES: $ 320,00

With this, it’s possible to produce approximately 65 liters of lemonade (lemon juice and ice also increase the volume!).

This translates into 260 glasses of lemonade, which he wants to sell at $2.00 each, which equals REVENUE of $520.

If he sells about 26 cups a day, he will exhaust his stock in 10 days, which is his goal.

So, putting this simple return on investment calculation example into the formula, we get:

ROI =         520-320×100                       320

ROI = 62.5%

That is, with each invested $ 1.00, the young Pedro gets back an additional gain of slightly greater than $ 0.62 cents.

In other words: for every $ 1.00 invested he finishes his venture with $ 1.62, making the calculation:

$ 320.00 x 1.625 = $ 520.00.

Of course, this is an example of a purely enlightening Return On Investment for those who didn’t yet know the concept.

Below are other return on investment calculation examples that may be best suited for those who want to better understand what financial management is.

See also: How to start a home business: The 4 VRIO questions

Return On Investment Calculation Example’s

It’s important to remember for anyone who wants to learn how to calculate Return On Investment for projects or companies that a common practice is: To define 3 scenarios.

Pedro simply assumed that he would sell everything he produced in 10 days, but what if it rained during that period, or on the contrary was so hot that his stock ended in 5 days?

So, let’s include this practice in the following return on investment calculation example.

Return On Investment example in a print media marketing campaign

Imagine a shoe brand that has average sales of 100,000 pairs in its summer launches every year.

This brings revenue of $ 1,000,000.00 in this period, which corresponds to a profit of $ 200,000 (around 20%), every year in the summer.

The marketing director decides to launch a new marketing campaign by posting ads in fashion magazines, all produced by their advertising agency.

The total cost of this campaign is $ 200,000.00.

• Pessimistic: 20% increase in sales = Profit of $ 240,000.00
• Average: 30% increase in sales = Profit of $ 260,000.00
• Optimistic: 40% increase in sales = Profit of $ 280,000.00

Note: In this case, the gain from the marketing campaign should be measured by the increase in profit, not total revenue, to justify the investment.

Let’s put it in the formula and see if the the board and chairperson approve the campaign:

• Pessimistic Return On Investment example – Calculation: (240 – 200)/200 x 100 = 20%
• Average Return On Investment example – Calculation: (260 – 200)/200 x 100 = 30%
• Optimistic Return On Investment example – Calculation: (280 – 200)/200 x 100 = 40%

Apparently they will approve this marketing campaign based on this return on investment calculation example. But what if these scenario forecasts didn’t materialize?

This is a risk inherent in every business, and that’s why your sales forecasts should be the best possible. Therefore, they should be based on reliable historical data and statistical software that signal the increase or decrease in demand as a result of marketing investments, among other factors .

Return On Investment example in an online media campaign

The advantage of online campaigns is that you can keep track of the Return On Investment. If the desired scenarios don’t go your way, you can quickly change your campaigns to adjust your investments across different media to improve results.

Look at this return on investment calculation example in 3 different types of marketing investments in online media:

Imagine a company that provides cloud-based BPM modeling software through SaaS , that is: with a monthly fee users are entitled to use the software.

To advertise the business they opt for 3 online strategies:

Content Marketing:

Create articles for a blog that addresses issues of interest to their audience. They lure customers to a landing page to get them to share contact information such as email and phone in exchange for differentiated materials and experiences, such as e-books or trials.

Ads on Google Ad Words:

Which will route leads to these same landing pages, offering e-books and trials.

Ads on Facebook Lead Ads :

A Facebook integration that allows users to fill out forms in exchange for the same materials and experiences mentioned above.

In this SaaS company, sales funnel analysis shows that 20% of leads to their landing pages fill out the registration form.

So, of these 20%, 40% react positively to emails with information about their BPM tool and of these 40%, another 40% end up buying the product, when they’re contacted by telephone.

Thus, the final conversion rate is 3.2% or (0.20 x 0.40 x 0.40) , for each lead that arrives at a company landing page and consequently fills out the form.

For example: out of every 1,000 people who reach their landing page, 32 end up buying the product.

The company knows from its historical marketing investment data over the years that to refer 100 leads to a landing page, it’s necessary to invest individually in each option:

• $ 200 in Content Marketing
• $ 240,00 in Facebook Lead Ads
• $ 300.00 in Google AdWords

(NOTE: this data is totally hypothetical and doesn’t indicate any tendency towards particular investments, they are mere examples!)

As the company’s average product cost is $ 100, this means that 100 leads sent to a landing page will generate, on average, 3.2 sales conversions, that is, a revenue of $ 320.00 (3.2 x $ 100.00).

Therefore, by applying this value in the formula, we can discover the ROI of each investment in social marketing:

• Content Marketing = 320 – 200/200 x 100 = 60%
• Facebook Lead Ads = 320 – 240/240 x 100 = 33.3%
• Google AdWords = 320-300/300 x 100 = 6%

So, after realizing that in this hypothetical return on investment calculation example Content Marketing is more advantageous, the company invests 50% of its budget in this, 30% in Facebook and 20% in Google.

Because after a month of making these investments, the company can analyze the conversion data with the help of analytical tools and other features offered by these media companies themselves and know exactly what the return and conversion rate of each strategy is, recalculating their Return On Investment and reallocating funds.

So, what do you think of these Return On Investment examples to define marketing investments?

Does your company use other types of investment analysis, such as IRR or Present Value? Tell us in the comments!

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Home > Calculators > Return on Investment Calculator

Return on Investment Calculator

This return on investment calculator will help you to calculate return on investment for use in the Financial Projections Template and your business plan.

The Excel ROI calculator, available for download below, helps a business calculate return on investment.

How to use the Return on Investment Calculator

To use the return on investment worksheet enter details relating to the investment and the exit valuation.

Firstly enter the following details in relation to the investment.

• The amount invested in the business.
• The percentage of the business equity purchased.
• The number of years after which the investor exits the business.

Value on Exit

Secondly enter the following details relating to the exit valuation

• The PE ratio for the business.
• The annual profits on which to base the valuation

Additionally our blog article on return on investment gives full details of how this return on investment calculator can be used.

Return on Investment Calculator Download

The return on investment spreadsheet is available for download in Excel format by following the link below.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Searching for return on equity: a powerful screening strategy explained.

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Return on equity is a popular measure of profitability and corporate management excellence.

In this article I cover a strategy that identifies stocks with strong return on equity (ROE) and give you a list of stocks that currently pass the AAII Return on Equity screen . Return on equity may help to reveal profitable firms, but does Wall Street reward the stock prices of these firms? As of April 30, 2024, the AAII Return on Equity screen has gained 11.8% annually since inception in 1998, while the S&P 500 index has returned 6.1% annually over the same period.

Measuring Profitability By What Shareholders Earned

Return on equity is a popular measure of profitability and corporate management excellence. The measure is determined by dividing the firm’s annual earnings by shareholder’s equity. This relates earnings generated by a company to the investment that shareholders have made and retained within the firm. Shareholder’s equity is equal to total assets of the firm less all its debt and liabilities. Also known as stockholder’s equity, owner’s equity or simply equity, it represents investors’ ownership interest in the company. It is also known as the book value of the company.

Warren Buffett considers it a positive sign when a company is able to earn above-average returns on equity. Buffett believes that a successful stock investment is first and foremost the result of the underlying business; its value to the owner comes primarily from its ability to generate earnings at an increasing rate each year. Buffett examines management’s use of owner’s equity, looking for management that has proven its ability to employ equity in new moneymaking ventures, or for stock buybacks when they offer a greater return. If the earnings are properly reinvested in the company, earnings should rise over time and stock price valuation will also rise to reflect the increasing value of the business.

Return on equity indicates how much the shareholders earned for their investment in the company. Annual net income of $100 million created on a base of $300 million in shareholder’s equity is very good ($100 ÷ $300 = 0.33, or 33%). However, $100 million in annual net income relative to $3 billion in shareholder’s equity would be considered relatively poor ($100 ÷ $3,000 = 0.03, or 3%). Generally, the higher the return on equity, the better. A return on equity above 15% is good, and figures above 20% are considered exceptional. However, it is important to compare return on equity with industry averages to get a true feel for the significance of a company’s ratio.

Return On Equity Defined

Return on equity can be simply stated as net income divided by common shareholder’s equity. However, return on equity can be broken down into three components: net profit margin, asset turnover and financial leverage. Multiplying these three components together results in return on equity.

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The net profit margin—net income divided by sales—reflects how efficient a firm is in operations, administration, financing and tax management per sales dollar. A rising or improving profit margin over time translates into an increase in earnings for a given level of sales.

Asset turnover—sales divided by total assets—shows how well a company utilizes its asset base to produce sales. Poorly deployed or redundant assets result in low asset turnover that adversely reflects return on equity and profitability.

Multiplying profit margin and asset turnover together results in return on assets (ROA). A firm can increase its return on assets, and thereby its return on equity, by increasing its profit margin or its operating efficiency as measured by its asset turnover. Margins are improved by lowering expenses relative to sales. Asset turnover can be improved by selling more goods with a given level of assets. This is why companies try to divest assets (operations) that do not generate a high degree of sales relative to their value, or assets with decreased sales generation. When examining profit margins or asset turnover, it is important to consider industry trends and compare them to how a company is doing within its industry.

Financial leverage completes the return on equity equation. Financial leverage—total assets divided by common shareholder’s equity—indicates the degree to which the firm has been financed through debt as opposed to equity sources. The greater the value of this leverage ratio, the greater the financial risk of the firm—but also the greater the return on equity. When equity is small relative to debt, generated earnings will result in a high return on equity, if the firm is profitable. The risk with high levels of debt is that a company will not generate enough cash flow to cover the interest payments during challenging times.

Debt magnifies the impact of earnings on returns during both good and bad years. When large differences between return on assets and return on equity exist, an investor should closely examine the liquidity and financial risk ratios.

The ideal firm would maintain a high net profit margin, utilize assets efficiently and do it all with low risk, as reflected by a low financial leverage. The key in working with return on equity is examining and understanding the interplay between the determinants of the ratio.

Implementing The Return On Equity Screen

The primary goal of the AAII Return on Equity screen is to identify companies with consistently high return on equity. Secondarily, the approach includes characteristics to filter out firms with high levels of debt, low margins and low asset turnover relative to industry medians.

The AAII Return on Equity approach starts by seeking out companies operating with a return on equity 1.5 times their respective industry median over the last 12 months and each of the last five fiscal years. This screen helps to reveal companies whose management has consistently generated the highest profits from its equity capital. This strategy does not simply screen for companies with return on equity levels of 20% or higher but instead looks for ratios that are high relative to industry norms to highlight firms outperforming their peers.

Stocks Passing the Return on Equity Screen (Ranked by Return on Equity)

As discussed above, return on equity is influenced by profitability, efficiency and leverage. Therefore, the next set of screens seek companies outperforming their peers in these areas. First, the AAII Return on Equity approach requires that a firm’s net margin (net income divided by sales) exceed the industry median over the last four quarters (trailing 12 months). Net profit margin looks at bottom-line profitability. Firms exceeding their peers are translating a higher percentage of sales into profits.

Next, the AAII Return on Equity screen makes sure that the asset turnover (sales divided by total assets) for a firm exceeds the industry median over the last four quarters. Asset turnover helps to measure the efficiency of a firm’s use of its asset base. Firms exceeding their peers are generating higher levels of sales dollars for a given level of assets.

The AAII Return on Equity approach also specifies that when looking at the financial leverage of firms, the ratio of total liabilities to total assets at the end of the most recent quarter is below the industry median. A high return on equity can be attained by having a very high amount of debt and, therefore, a very low shareholder’s equity. In such a case, return on equity would be high, but risky. Financial leverage increases return but also increases risk. Highly leveraged firms have more volatile earnings. Acceptable levels of debt vary from industry to industry. More stable industries such as utilities can comfortably carry more debt on their balance sheets than volatile industries such as oil and gas. By comparing levels of liabilities to industry medians, the AAII Return on Equity screen takes industry differences into account.

To help ensure some basic level of growth, the strategy requires positive earnings and sales growth over the past 12 months. The approach also requires that the firm’s five-year historical growth rates in earnings and sales exceed their respective industry medians. The approach does not specifically look for high absolute levels of growth, just signs that the firms are expanding faster than their peers.

The AAII Return on Equity screen also requires that a stock be listed on an exchange to help ensure trading liquidity. Therefore, stocks that trade over the counter (OTC) are excluded. Due to their special nature, the screen also excludes real estate investment trusts (REITs), closed-end funds (CEFs) and American depositary receipts (ADRs).

The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.

If you want an edge throughout this market volatility, become an AAII member .

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2024 Solar Tax Incentives

Do you own a home that rolls, floats, or is stationery?  Regardless of whether it’s a first or second home, the 2022 U.S. Inflation Reduction Act provides tax incentives to help alleviate the initial upfront installation cost of a solar installation – whether you do it yourself or hire a professional.  

Additionally, this legislation has reinvigorated the renewables market in the United States, leading to a wave of new projects. It has been estimated to reduce U.S. emissions by about 40% by 2030 (compared with 2005 levels), bringing the U.S. closer to President Biden’s goal of cutting emissions in half by the end of this decade.

Homeowners choose solar power for a variety of reasons – to save money on utility bills, have a back-up power source when the grid goes down, and live more sustainably by powering their life with the sun.  If you live in the U.S. and are considering taking the solar plunge, you can save a bundle through both federal and state tax credit programs!  

Need some inspiration?  Check out our recent blogs to learn about families across the U.S. who made the switch to solar on their homes and RVs .  As solar educators, we’ve helped thousands make the switch to solar power by providing resources to help people calculate their daily energy demand s and DIY their own system.

How Does the Federal Solar Tax Credit Work?

As defined by the IRS, a home includes a “house, houseboat, mobile home, apartment cooperative, condominium, or manufactured home.”  So, yes, the solar powered system you put on your RV/van, off-grid cabin, or boat qualifies for the program, whether you hire a professional installer or do it yourself!  The federal solar tax credit not only applies to your primary residence, but also to a vacation or secondary home.  If you rent out your second home as a business, you can apply for the commercial investment incentive program . There are some special circumstances that apply if you rent it out for part of the year while also using it for personal use – see this article to be certain that this tax credit will work for you.

Am I Eligible for the Federal Solar Tax Credit?

You can apply the credit if you meet the following 3 criteria: 

• Your solar powered system was installed between January 1, 2017, and December 31, 2034.
• The solar system is located at your residence in the United States. AND 

You own the solar powered system (i.e., you purchased it with cash or through financing. Neither leasing the equipment nor paying a solar company for the energy produced by the system on your house qualifies for the tax credit.)

You invested in an interest in an off-site community solar project. Check out this link for more details.

• The solar powered system is new or being used for the first time.  The credit can only be applied to the “original installation,” (i.e., if you bought a home / RV / boat with a solar powered system already installed, you cannot take the credit.)

What Type of System Qualifies & How Much Can I Claim?

The federal solar tax credit applies to any complete solar system (of any size) installed and operational between January 1, 2017 and December 31, 2034.  Both on-grid or off-grid systems are included in the program, as well as any shared systems of which you might be a partial owner, referred to as Community Solar .  

If the system is (or was) installed and operational during the following years, your credit will be:

• 2017 - 2019* = 30%
• 2020 - 2021* = 26% (per the laws that were in place at that time)
• 2022 - 2032* = 30% 
• 2035 = 0% (tax credit expires)

*If you have already installed your system and didn’t file for the tax credit with that year’s tax return, all you need to do is file an amended claim for the tax year or years that are affected by your installation.  

It is important to note that if your federal solar tax credit ends up being more than your total tax owed on this year’s return, you can carry the remainder over on future returns until you’ve met the total credit allowed. Bonus!

How Much Can I Save with Solar Power?

If you plan to install a complete system for your home , it may cost approximately $25,000 depending on the size of your home, energy usage, and location.  With the current tax credit, you’ll save a whopping $7500, so ultimately the entire system will only cost you $17,500. Depending upon how your utility company reimburses you for the excess power that is generated and sent back to the grid, the time it will take for your system to repay you can be greatly reduced!

Or, maybe you have frequent power outages in your area and need a reliable whole home solar generator like the Renogy LYCAN 5000 Power Box in order to run your major home appliances until the power grid returns to normal?  You may spend up to $10,000 on this system (including a maximum of 4800W of solar panels), and can write off over $3000 of it with the 30% federal solar tax credit . 

If you are an RVer, boat owner, or have an off-grid cabin, you may spend anywhere from $2000 to $10,000 on a complete solar powered system – depending on your energy needs, where you travel & live, the type of battery bank you choose, and the size of your rig/cabin.  

Let’s use our own rig as an example. Our simple yet robust $2700 system has allowed us to travel and work from the road wherever we want to be.  Need something bigger?  Our friends in the Pacific Northwest recently installed a larger Renogy REGO system in their Forest River “Wolf Pup” travel trailer.  Their total system, including panels, components, and all additional wiring, etc. cost about $8,500, allowing them to write off $2550 – bringing the total cost of their installation to under $6000 with the federal solar tax credit.  This system allows them to run numerous household appliances (including their RV air conditioner for a few hours per day).  

Compare this investment with the average electrical hook-up campsite at around $50 per night (nationwide) for just 6 months. In half a year, campers who chose electrical sites will spend upwards of $9000 just for camping fees alone!  By investing in a robust solar powered system, you can get away from powerlines, traffic, and city noise and enjoy the thousands of gorgeous, off-grid campgrounds (~$20 per night) and public lands (free) all across the continent.  Combine these camping options with a 30% federal tax savings on a complete solar powered system, and your investment will have paid for itself within the first couple of months. Using grade school math, it suddenly becomes a no-brainer to go solar…right?

If you are at the beginning stages of planning your off-grid system check out the many solar resources we provide with special attention given to solar newbies, including an updated 2024 downloadable Solar System Sizing Spreadsheet (Excel document). 

What are the Long Term Savings with Solar?

In addition to saving thousands of dollars via tax credits, homeowners can greatly reduce their energy bills over the long term.  Many of the families we interviewed were realizing serious savings on their homes within the first few years.

Check out the chart below for some real numbers from southern California homeowners. A solar investment is estimated to break even at just 4 years after the installation (using just the federal tax credit!).  The system will offer an additional saving of $112,000 over a 25-year period on electric utility bills!

If you plan to go full-time in your RV like we do, the long-term savings are truly astounding!  By boondocking and choosing off-grid campgrounds without electrical hook-ups, we typically spend about $1,250 per year on camping fees.  In the past 11.5 years, we’ve spent just over $14,000.  If we had paid for campsites with electrical hook-ups over the same period of time (averaging $50 per night depending on the region), we would have spent nearly $210,000 to date!  Again, our complete solar powered system cost around $2700, so $14,000 in camping fees + $2700 for our solar powered system = $16,700…vs. $210,000!

When you combine the solar tax credit with everyday savings, it is truly a no-brainer when amortized over the long haul – whether you live in a “sticks and bricks” home, one that floats, or one on wheels!

What Costs Can I Include?

You can include all the costs, such as: materials, products, and labor for installing your solar system.  This specifically includes panels that you install directly on the roof, or solar roofing tiles which perform double duty as energy producers and roofing surface.  It does not, however, include any improvements that you might need to make to the roof of your house, support reinforcements, etc. which allows your roof to handle the weight of the panels.  Even if you have to reinforce your roof, it’s still a roof and cannot be included in the tax credit.  Anything specific to the panels, brackets, cables, inverters, and more can be included in the total investment cost.  

What IRS Forms Do I File To Report My Expenses?

• Residential Systems: IRS Form 5695
• Commercial Systems: IRS Form 3468

What Records Do I Need to Keep?

Simply retain any receipts for solar equipment and installation fees.  You do not need to submit these receipts with your return, but save them with your tax information.

How Do I Find State Solar Incentives?

In addition to the federal solar tax credit extension bill that was passed as part of the 2022 Inflation Reduction Act , many U.S. states also have tax incentives or programs to help homeowners reduce the overall cost of a solar power system, significantly shortening the payback time on your investment.  

While the federal solar tax credit is pretty straightforward, state incentives are more varied and complex.  For example, Massachusetts offers a solar loan reduction plan based upon income, North Carolina allows any solar investment on your home to be excluded from the property tax evaluation, which is also just 1 of the 5 California state solar tax credit incentives available to residents of the Golden State.  To learn about your state’s programs and incentives, visit the Database of State Incentives for Renewables & Efficiency .   And if you need help navigating the complexity of your state’s programs, finding a local installer might help cut through the confusion.

When’s the Best Time to Go Solar?

Solar installations start saving their owners money as soon as they are installed, so the sooner you start the process, the quicker you’ll see your investment start paying you back. Imagine the vacations you’ll take or the colleges you’ll be able to afford if you aren’t pouring money into high utility bills?  While the federal commitment to personal solar and a cleaner energy future is clear for the next 10 years, don’t wait until it’s too late to take advantage of the excellent state and local programs that are helping people make the switch.  Solar is here...and it’s designed for all!

In 2012, Shari Galiardi & David Hutchison left behind careers and a comfortable home in North Carolina to travel with the vintage camper trailer they lovingly restored, outfitted with solar, and named "Hamlet." What began as a short break from careers and responsibility quickly turned into a love affair with roadlife. They have parlayed their higher education backgrounds, desire for life-long learning, and thirst for adventure travel into writing, photography, video production, and public speaking gigs from coast to coast. Known to their friends as simply Shari & Hutch, you can learn more about their full-time, solar-powered adventures on their website at freedominacan.com . Or, follow them on Facebook , Instagram , and YouTube as “Freedom in a Can, LLC.”

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Money blog: Tourist taxes being imposed across Europe (and in UK) - here's how much they all are

An increasing number of cities are either imposing or increasing the cost of tourist taxes on visitors. Read this and our other Weekend Money content below, and let us know your thoughts. We'll be back with live updates on Monday.

Saturday 18 May 2024 17:03, UK

Weekend Money

• How to sell your home without an estate agent
• Tourist taxes to watch out for in popular holiday destinations
• Childcare vouchers, hard work and new skyscrapers: What readers have said this week
• Three things you need to know from Money this week

Best of the week

• The rise of Michelin starred 'fast food'
• How much do buskers make?
• Basically... What is PIP - and what could government changes mean?
• How to make sure your car passes its MOT
• Money Problem : My workplace wants to pay us by the minute - what can I do?
• Best of the Money blog - an archive

Ask a question or make a comment

As we've been reporting in the Money blog over the last few months, an increasing number of cities are either imposing or increasing the cost of tourist taxes on visitors. 

Many say they are preventing damages from overtourism, as well as funding local infrastructure and businesses. 

Here are the latest tourist fees for the most popular spots in Europe...

Tourists visiting Venice for the day will have to pay a €5 entry fee to enter the city between the hours of 8.30am and 4pm.

Meanwhile, those staying overnight in Venice are charged a fee between €1 to €5 within the accommodation price for the first five consecutive nights.

People visiting the Spanish city now have to pay €3.25 if they're staying in official accommodation, up from €2.75.

Manchester 

Visitors must pay £1 per room, per night across 73 hotels. 

The scheme, which has raised more than £2m within a year, is for improvements to attract more tourists.

Tourists must pay €2 per person for every night they stay, although this is only applied for a maximum of seven nights.

The Greek government has introduced a Climate Crisis Resilience Fee to charge tourists anywhere from €0.50 to €10 per room, per night.

The amount depends on the hotel category and the time of year.

Visitors to the Croatian city must pay €2.65 per person, per night throughout April to September. 

However, the fee has been temporarily reduced to €1.86 for the rest of this year.

Different amounts are charged depending on the type of accommodation.

The most expensive charge is €14.95 for a stay in palaces, and €0.65 at one or two-star campsites, per person, per night. 

Those staying in a typical four-star hotel are charged around €8.

Those staying in the Hungarian capital are charged an additional 4% each night, which is calculated based on the price of the room.

Tourists in Berlin must pay 5% of the room price, excluding VAT and service fees.

The tourist tax here has increased from €0.82 to €1.97 per day. 

Prices researched by travel insurance site Quotezone.co.uk

By Ollie Cooper , Money team

Estate agent fees are one of the big expenses in selling a house - but rule changes and the rise of private sale websites have made it more common for people to go it alone.

But how easy is it - and what do you need to know? We spoke to industry experts to find out.

Firstly, what do estate agents do for their money?

An estate agent will typically charge in the range of 1%-3.5% of the sale price. 

That means for the average house price (£284,691 from December) you could pay anywhere from £2,846 to £9,964 in commission fees.

"When you use an estate agent, their fee includes taking professional photographs, advertising your home, conducting property viewings, and negotiating a price on your behalf," says Jack Smithson  from the home ownership site  Better.co.uk .

In addition, an estate agent will compile comprehensive details of your house, including room sizes and descriptions of fixtures and fittings. 

"They will also provide a concise write-up about the local area, highlighting amenities, schools, and transportation links," Jack adds. 

And they'll conduct checks on buyers for you (more on this later).

It sounds like a lot, but...

"Selling your home yourself can be a manageable process with a few key steps," Jack says.

Preparation 

You should begin by thoroughly researching house prices in your area, using websites like Rightmove and Zoopla - but seek free valuations from local estate agents to ensure you have a realistic asking price in mind.

Next, you want to take high-quality photos of your house.

Jack advises using tutorials on YouTube to learn new shooting and editing techniques that can take you to the next level.

You then want to write down what makes your home unique.

"While browsing other listings for inspiration, take it a step further by emphasising what you love about living in your home and the surrounding area," Jack suggests.

"Whether it's the refreshing scent of the coastline or the tranquil sounds of village life, incorporating these details can help potential buyers visualise living there," he advises. 

Like using YouTube for photography tips, you can use free tools such as ChatGPT and Grammarly if you need help with your writing, Jack says. 

Advertising

This is probably the biggest perk of going through an established estate agent - your home is much more likely to be viewed because they will have an established audience and a market. But it's very possible to do it alone. 

"When it comes to advertising your home, explore a variety of avenues including local newspapers and social media," Jack says.

"Consider using websites like Strike, which allow individuals to list their properties for free on platforms like Rightmove," he suggests.

Viewings 

Once you've secured some viewings, you've got the opportunity to make it a bit more personal than estate agents ever could - a real advantage. 

"Explain the reasons behind your decision to purchase the property, highlight its unique features, and share the aspects of your neighbourhood that make it a desirable place to live," Jack says. 

The small things matter when showing people round - so try to take an objective look around before you bring anyone in.

Do the things you'd do normally - make sure it smells nice and it's clean and tidy.

"Lastly, it's worth knowing that you must legally provide potential buyers with a free Energy Performance Certificate (EPC)."

The sale itself

Perhaps the most daunting aspect is the physical exchange of contracts and money. 

An estate agent would typically oversee the process of the initial offer acceptance to the transfer of keys to the new owner.

However, if you go it alone, you'll need to become the central point of contact - bridging the gap between your solicitor or conveyancer and the buyer and their legal representative.

"Once you've accepted an offer on your property, your first task is to draft what's called a memorandum of sale," Jack says.  

This document is a written confirmation of your acceptance of the offer and details the agreed price along with any specific conditions you've both agreed to.

"It's then recommended to engage the services of a solicitor or conveyancer to ensure all legal obligations are met," Jack says (of course, you'll need to do this even if you have an estate agent).

The cost of hiring one typically ranges from a few hundred to over £1,000, depending on factors such as fixed fees, hourly rates, the complexity of the sale and additional costs like property searches or land registry fees.

"In the absence of an estate agent, you'll be responsible for keeping your buyer informed about the progress of the sale. This involves regular updates on the status of legal procedures and any relevant developments," Jack says, before adding that this can actually be a good thing.

"By taking on these responsibilities independently, you'll have greater control over the sale process. However, it will require you to be exceptionally organised, and you'll need to be very good at communicating too."  

Any risks to be aware of?

Rita Patel, legal director at law firm  Browne Jacobson , tells us the biggest risk for people selling their properties without an estate agent is the lack of a vetting and verification process of the potential buyer.

Estate agents will verify the buyer's identity and check the buyer's proof and source of funds - without this, there's no way to assess the buyer is legitimate and can afford to buy.

"Whilst this process is something lawyers can help with, this is often at an additional cost, and you'll need to start from square one if there is an issue with a potential buyer's identification and/or financial eligibility," Rita says. 

More generally, selling without an agent can extend the time it takes to sell. 

"Zoopla suggests this timeframe is normally around 17-34 weeks, but with no one on hand to consistently promote and drive the property sale at all stages, going solo drags this process out," Rita says. 

"Agents can also help mediate any potential breakdowns in communication between the buyer and seller - reducing the likelihood of having to go back to market and start again."

The advantages

Laura Owen-Brown, a PR manager from Gloucestershire, tells us she is set to sell her house without an estate agent in the near future.

"My disappointment with estate agents stems from their lack of familiarity with the properties they attempted to sell me when I was buying my current house," she says. 

"They couldn't tell me about the details that truly matter, like the optimal times for sunlight in the garden, how much council tax I'd pay, what the roof was made of, the places I could walk my dog off lead or the impact of post-football match traffic on Sundays.

"These types of details can shape the experience of living in a house for years and are just as important as the square footage, EPC rating or how many bedrooms a property has," she adds. 

She says the current "transactional" approach to selling houses feels "impersonal and outdated" to her. 

"Yes, I'll have to handle more admin, but the savings in both money and time will make it worthwhile. Liaising with buyers and solicitors directly without a third party slowing everything down will mean I can be in control and have transparency throughout the process, especially during negotiations," she says.

All in all...

As Laura says, it's very much a case of whether you can stomach the admin and are happy to take the risks on background financial checks. 

If you are aware of all the above and willing to take on the organisational burden, you could save yourself a serious chunk of cash. 

The main topics from the Money blog that got you commenting this week were...

Government-funded childcare

• Michel Roux Jr's comments about the future of the restaurant industry 

Nearly 600 new skyscrapers for London

From last Sunday, eligible working parents of children from nine-months-old in England have been able to register for access to up to 15 free hours of government-funded childcare per week.

Those hours can be claimed from September. 

Some readers pointed out the T&Cs... 

This 15 hrs a week is for term time ONLY. So full-time working parents will have to either tell their employer they can't work in school holidays or pro-rata it across the year which is 10 hours a week. Yvonne grandma

Others said it spoke to issues in the wider childcare sector...

Is the government going to give pay rises to nursery staff? They are very low paid staff, and can't get enough staff as it is!! Nurseries may have to close if they don't get staff, so parents won't be able to take up the offer!! What is the government going to do about it? Carol

Chefs or delivery drivers?

Celebrity chef Michel Roux Jr has suggested that restaurants may only open three days per week because young people prefer other jobs - like delivering parcels. 

"Just because I worked 80 hours a week or more doesn't mean the next generation should," he said. 

"Quite the contrary. That is something that we have to address in our industry."

Readers said...

That's because one [job] is on the verge of slave labour and one definitely is slave labour. And the latter I'm referring to is working in a kitchen for a chef.  Realist2024

Spent 35 years working as a chef. Young people nowadays are not willing to do the extra hours (usually unpaid) and work every weekend. Godsends like my generation of chefs did and do.  Bucks

There's been considerable backlash in our comments section after a thinktank said a total of 583 skyscrapers are "queuing up in the pipeline" to be built across central London.

That is more than double the 270 built in the past decade...

"600 new skyscrapers on way for London" while the majority are struggling. When will something serious be done about growing wealth inequality in the UK? A growing economy is useless while the gap between the ultra rich and everyone else increases. Qwerty1

How many unnecessary skyscrapers for London? It's fine, as long as they are not made using steel, glass, concrete or bricks - don't people know there's a climate emergency? Shanghaiwan

Who's paying for it? What about the North? treelectrical

The energy price cap is set to fall by about 7% in July, a respected energy markets researcher has said.

Ahead of next Friday's announcement by Ofgem for the July-September period, Cornwall Insights said: "For a typical dual fuel household, we predict the July price cap to be £1,574 per annum" - a drop from £1,690.

Looking further ahead, it forecasted the cap will rise again slightly in October, before falling in January next year. 

"A predicted 7% drop in energy prices in July is clearly good news, with the price cap looking likely to hit its lowest level in over two years," a spokesperson for Uswitch said. 

Around 100 more prosecutions of sub-postmasters unrelated to the Horizon scandal could be "tainted" , a Sky News investigation has found, as officials worked with now discredited Post Office investigators to secure convictions.

The prosecutions of Post Office staff were led by the Department for Work and Pensions (DWP) between 2001 and 2006.

It is understood these usually involved the cashing in of stolen order books.

The Post Office itself wrongly prosecuted hundreds of sub-postmasters between 1999 and 2015 - based on evidence from the faulty Horizon accounting system.

Read more from our business correspondent Adele Robinson  by clicking  here ...

The UK's mega rich are dwindling in a sign Britain's "billionaire boom has come to an end" , according to the latest Sunday Times Rich List.

The list reveals the largest fall in billionaires in the guide's history - from a peak of 177 in 2022 to 165 this year.

While the combined wealth of the list's 350 wealthiest individuals amounts to more than £795bn - larger than the GDP of Poland - the guide's compiler says time will tell what impact a drop in billionaires could have.

"This year's Sunday Times Rich List suggests Britain's billionaire boom has come to an end," Robert Watts said.

Read on here ...

The Money blog is your place for consumer news, economic analysis and everything you need to know about the cost of living - bookmark news.sky.com/money.

It runs with live updates every weekday - while on Saturdays we scale back and offer you a selection of weekend reads.

Check them out this morning and we'll be back on Monday with rolling news and features.

The Money team is Emily Mee, Bhvishya Patel, Jess Sharp, Katie Williams, Brad Young and Ollie Cooper, with sub-editing by Isobel Souster. The blog is edited by Jimmy Rice.

The Body Shop’s administrators are to launch an auction of the chain after concluding that an alternative restructuring of one of Britain’s best-known high street retailers was not viable.

Sky News has learnt that FRP Advisory, which has been overseeing the collapsed business since January, is to begin formally sounding out potential buyers in the coming weeks.

The move raises the prospect of new owners taking control of The Body Shop, which was founded nearly half a century ago.

Read more here ...

The UK's mega rich are dwindling - in a sign Britain's "billionaire boom has come to an end", according to the latest Sunday Times Rich List.

Published today, the list reveals the largest fall in billionaires in the guide's history - from a peak of 177 in 2022 to 165 this year.

"Many of our home-grown entrepreneurs have seen their fortunes fall and some of the global super rich who came here are moving away."

Top of the list is British-Indian businessman Gopi Hinduja and his family, whose wealth of £37.2bn is the largest fortune in the ranking's history.

But other familiar names in the list saw their riches fall, with Sir Richard Branson's total dropping by £2.4bn, which is back to his 2000 level.

Last year's top climber Sir Jim Ratcliffe, who bought a stake in Manchester United this year, fell two positions with a decline of £6.1bn.

Euan Blair, Tony Blair's eldest son, made the list for the first time, as did Sir Lewis Hamilton.

It comes as the UK continues to deal with a cost-of-living crisis, with new figures this week revealing a record 3.1 million food bank parcels were distributed over the course of a year.

The top 10:

• Gopi Hinduja - £37.2bn
• Sir Leonard Blavtanik - £29.2bn
• David and Simon Reuben and family - £24.9bn
• Sir Jim Ratcliffe - £23.5bn
• Sir James Dyson and family - £20.8bn
• Barnaby and Merlin Swire and family - £17.2bn
• Idan Ofer - £14.9bn
• Lakshmi Mittal and family - £14.9bn
• Guy, George, Alannah and Galen Weston and family - £14.4bn
• John Fredriksen and family - £12.8bn

A group of social media influencers have been charged in relation to promoting an unauthorised investment scheme.

The Only Way Is Essex (TOWIE) original cast member Lauren Goodger, 37, former Love Island star Biggs Chris, 32, and Celebrity Big Brother winner Scott Timlin, 36, also known as Scotty T, are among seven TV personalities alleged to have been paid to promote the scheme to their combined 4.5 million Instagram followers.

The others charged by the Financial Conduct Authority (FCA) include former Love Islanders Rebecca Gormley, 26, Jamie Clayton, 32, and Eva Zapico, 25 and TOWIE member Yazmin Oukhellou, 30.

The UK's financial watchdog brought the charges in a crackdown on "finfluencers" who use their online platforms to offer advice and information on various financial topics.

It alleges that between 19 May 2018 and 13 April 2021 Emmanuel Nwanze, 30, and Holly Thompson, 33, used an Instagram account to provide advice on buying and selling investments known as contracts for difference (CFDs) when they were not authorised to do so.

The watchdog said CFDs were high-risk investments used to bet on the price of an asset, in this case the price of foreign currencies.

It previously warned that 80% of customers lost money when investing in CDFs.

Mr Nwanze has been charged with running the scheme. He faces one count of breaching the general prohibition of the Financial Services and Markets Act 2000, and one count of unauthorised communications of financial promotions.

Ms Thompson, Mr Chris, Mr Clayton, Ms Goodger, Ms Gormley, Ms Oukhellou, Mr Timlin and Ms Zapico each face one count of unauthorised communications of financial promotions.

All nine will appear at Westminster Magistrates Court on 13 June.

The FCA asked anyone who believed they had sustained a loss due to the scheme to contact its consumer contact centre.

A hotel part-owned by Gary Neville and other ex-Manchester United legends has been named one of the best places to work in hospitality. 

Each year, The Caterer releases its top 30 best places for employees in the sector, with the top six featuring some familiar names.

The list is compiled via anonymous employee survey - with no input from managers or owners. 

Hotel Football, the only hotel with a rooftop five-a-side pitch, was among the top six venues selected by employees across the UK. 

The hotel's benefits package was particularly well-praised by those who work there - given that it "prioritises the financial wellbeing of employees during the cost of living challenge".

Management at the hotel, which is situated next to Manchester United's Old Trafford stadium, was also praised for enhanced maternity, paternity, parental and adoption leave policies and a strong belief in diversity and inclusion. 

The other five to make up the top six are The Biltmore in Mayfair, Cycas Hospitality (which has 18 locations across the UK), Dalata (which boasts some 1,000 employees), Gleneagles Hotel in Edinburgh and Nobu Hotel in Shoreditch, London. 

The energy price cap is set to fall by about 7% in July, a leading thinktank has said. 

Cornwall Insights said: "For a typical dual fuel household, we predict the July price cap to be £1,574 per annum" - a drop from £1,690.

Looking further ahead, it forecasted the cap to rise again slightly in October, before falling again in January next year. 

Reacting to the news, Uswitch said the predicted drop was "clearly good news". 

"The future still remains uncertain, and with the price cap changing every three months – currently expected to rise in October before falling slightly in January –  it's crucial not to be complacent," Richard Neudegg, director of regulation, said. 

However, "a predicted 7% drop in energy prices in July is clearly good news, with the price cap looking likely to hit its lowest level in over two years", he said. 

He also urged  households who want to lock in rates for price certainty to run a comparison to see what energy tariffs are available to them.

"There are many 12-month fixed tariffs available at rates cheaper than the current price cap, and even some that are 2% below these new predicted July rates," he said. 

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