What is ROI - Return on Investment?
There are many things to learn when you are starting a new business or joining one, whether it is Internet based or other – and one of those things is what is ROI – return on investment?
ROI, return on investment, is also sometimes called rate of return (ROR) or just simply return. It is a term used to describe how much money a investor gains or loses in a ratio to how much money they invest in a company. While this sounds complex, it is really just a matter of percentages. If you have invested $100 into a company, and you earn $5 from that investment – this is considered a 5% ROI. This information can be useful when determining how much to invest into a company or other investment opportunity.
While this is the simple answer to what is ROI – return on investment, there are many other things to consider while looking at this figure. For instance, the amount of money earned on a lower percentage ROI might be more than that on a higher percentage ROI. This is all dependent on how much money you invested in the first place. A 20% ROI on an investment of $100 is $20, while a 5% ROI on an investment of $1000 is $50. You are getting more money back on the 5% ROI, but you also had to invest more in the first place.
ROI can also be negative. When you invest in a new company, there is no way to be sure it will be profitable, and most companies lose money when they are first opened. This can lead to a negative ROI. For example, if you put $1000 into a company and it loses an additional $50, that would be a -5% ROI. The negative ROI can result in you needing to invest more into the company, or the company needing to find new or more investors. Looking at a company's overall ROI can let you know whether you want to invest in the first place.
When deciding which type of company to invest in, it is also important to look at the term of your investment. If you plan to leave your money with a company and get residual money from them for a long period of time, you might be safer with a company that has a lower ROI – especially if the higher ROI comes with a company that has not yet had a proven track record. 5% ROI for 10 years is going to net you more money than 20% ROI for two years.
While there is an easy answer to what is ROI – return on investment, not all returns can be measured in percentages and money. Sometimes, investments are made for more personal reasons, or for causes or other important issues. ROI is not the only factor to consider when investing.