Return on Investment (ROI)
“Return on Investment can be defined as a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments” .
Data:-
Per hour wage of trainees : 12$
Time spent on training : 2 hours
Additional Benefits to trainees : 25% of wage
Additional wage for instructor : 25%
Distance learning cost : 5,000$
Material cost per training : 60$
Before training sales : 6,000$ per week
After training sales : 7,500$ per week
ROI = (Gain on investment – Cost of investment)/Cost of investment
Solution:-
2 hour wages of trainees (During training) = 2x12$x100+25%x(2x12$x100) = 3,000$
Materials per trainee = 60$x100 = 6,000$
Distance learning cost = 5,000$
Cost of investment = 3,000$+6,000$+10,000$+5,000$= 24,000$
Gain on investment = After training sales – before training sales = 1,500$ per week
Gain on investment for one year = 1,500$/week x 52 weeks = 78,000$
ROI = (Gain on investment – Cost of investment)/Cost of investment
= (78,000$–24,000$)/24,000$
= 225%
Additional data that could help calculate the ROI in better can be as mentioned below:-
- Actual profit per week instead of sales per week
- Actual sales per year instead of sales per week
The aim of Return on Investment or simply the ROI is to analyze and measure, for a specific period of time, the rate of return on investment to decide whether to invest or not. ROI provides a quick snapshot of the profitability of an investment, adjusted according to the size of investment assets in an enterprise. ROI can often be calculated through expected rates of return on investment invested. Most of the marketing decisions are made on the basis of ROI; however, the same decisions are often influenced by capital requirements and assets usage. Marketing experts must keep in view the position related to the company and all of the expected returns .
References
Advisicon, Runcie, T., & Dochtermann, D. (2012). Making Effective Business Decisions Using Microsoft Project. Hoboken (NJ): John Wiley & Sons.
Friedlob, G. T., & Plewa, F. J. (1996). Understanding Return on Investment. Hoboken (NJ): John Wiley & Sons.
