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Return on Investment Calculation

ROI

ROI is short for the phrase “Return on Investment” and tells you how much you’ve earned on what you’ve spent on the market.

Basic calculations of ROI
Last year I bought an old broken down house for $100,000 dollars. The reason why I chose to pay so much for a broken down house was to renovate it, sell it and make a hefty profit from it.

6 months later, after the renovation, I sold the house for $ 265,000 dollars which landed me a hefty profit of $ 79,000 dollars. In other words, my return on investment (ROI) was $ 79,000 dollars.
This is how you calculate the ROI.

Cost of Investment
House $ 100,000 dollars

 

Renovations Cost
Bathroom $ 22,000 dollars
Kitchen $ 20,000 dollars
Living room $ 6,000 dollars
Bedroom 1 $ 5,000 dollars
Bedroom 2 $ 5,000 dollars
Bedroom 3 $ 6,000 dollars
Hall/Stairs $ 5,000 dollars
Garden $ 7,000 dollars

 

Cost of Sale
Real Estate Broker $ 16,000 dollars

 

Total sum of investment $ 186,000 dollars

 

ROI $ 79,000 dollars

 

 

Calculating ROI of marketing
In 2005 I ran a small home business where I sold aluminum baseball bats for $ 55 dollars each.
I thought that the sale was too slow because I only sold a total amount of 240 bats that year, with a ROI of $ 11,280 dollars. My goal was to sell 720 bats by the end of 2006. January 2006 I paid (invested) in online marketing. Two months later I surpassed my goal selling a total of 960 aluminum bats, making me a healthy profit of $ 45,120 dollars.

Before Investment in Marketing

Cost of investment
Aluminum Bats $ 1200 dollars.
Shipment $ 720 dollars.

 

Total sum of investment $ 1920 dollars.

 

ROI $ 11,280 dollars.

 


After Investment in Marketing

Cost of investment
Aluminum Bats $ 4800 dollars.
Shipment $ 2880 dollars.
Marketing cost $ 950 dollars

 

Total sum of investment $ 8630 dollars.

 

ROI $ 36,490 dollars.

(These calculations are not fully detailed. The calculations are only meant to give you an idea on how basic calculation of ROI works.)

 

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