When it comes to a business, ROI stands for Return on Investment. Essentially, it is a measure of how successful a business is in relation to the amount of money that has been invested into it.
In short, ROI tells you how efficient your business is with the resources it has at its disposal.
For a new business owner, this may be difficult to understand without some examples. Let’s say you invest $1,000 into your business and over the course of a year, you earn back $1,500.
This would mean that your ROI is 50%, meaning you’ve earned back five times the amount of money you invested.
Alternatively, if your business only earns back $500 over the course of a year, your ROI would be -50%, meaning you’ve lost money on your investment.
Knowing your company’s ROI can help you make better decisions about where to allocate your resources in order to improve your profits.
It can also help you determine whether or not a particular investment is worth making.
