What is Return on Investment (ROI)?
Nexa Consultancy | Startup & Finance Glossary
Return on Investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an investment. It measures the amount of return on a particular investment, relative to the investment's cost. A high ROI means the investment's gains compare favorably to its cost.
For Startups: For a startup, ROI can be calculated for various initiatives to determine where to allocate limited resources. For example, a marketing team would calculate the ROI of a specific campaign to see if it was worth the investment. Founders and investors ultimately look at the overall ROI of the business itself.
Calculation: ROI = [(Net Profit from Investment - Cost of Investment) / Cost of Investment] * 100%.
Example: A company spends ₹5 Lakhs on a new marketing campaign that generates ₹20 Lakhs in additional profit. The ROI of the campaign is [ (₹20L - ₹5L) / ₹5L ] * 100% = 300%.