The return on investment is a value that measures the economic performance that is achieved with an acquisition.
The ROI makes it possible to know how much money is involved in carrying out a commercial action (e.g., effort and money.
The ROI represents the financial result of the investments made by the company and provides a value that can be positive or negative.
The ROI relates the investments made to the profits made, so it is necessary to use a mathematical formula that includes the two variables to calculate it.
Therefore, formula for calculating the ROI is the difference between income and investment divided by the investment: ROI = (Income – Investment) / Investment. This result gives a number that represents the return on the investment and is usually converted into a percentage to analyze that return.
Let’s look at an example of an ROI calculation assuming an investment of $ 1000 in a sales campaign for an e-commerce product. This campaign generates an income of € 3000. To calculate the ROI according to his formula, ROI = (3000 – 1000) / 1000 = 2.
Converted to a percentage, this campaign generates an investment of 200% and a return of € 2 for every euro invested. By analyzing and comparing the ROI of other movements carried out, the success of the actions carried out can be measured to make campaigns of enormous scope and more successful in the future.
There are solutions on the market to determine the ROI of a project, such as websites with an online ROI calculator or software tools to calculate the ROI.
Therefore, ROE (Return of Equity) is a critical parameter to measure a company’s profit. It a metric that calculated by dividing net income by equity.
Although ROI and ROE are two similar numbers, their main difference is that ROE considers the interest and taxes associated with the investment, while ROI uses gross income.
Because of this, an investment may generally be profitable based on the value of its ROI, but with high interest and taxes involved, the ROE is not as good.
Currently, many investments by companies and organizations are focused on IT projects. Calculating the ROI of these investments makes it easier to understand and demonstrate the value of a particular investment.
In technology to the company and convince management or finance of the profitability of that investment.
Therefore, main reasons for measuring ROI in IT are:
The ROI of an IT investment relates to its benefits and the cost of its implementation. Therefore, result achieved the performance of choice mentioned (if the investment made or to be made in IT is more or less profitable).
Compare investments in technology to better predict future costs.
It helps in the presentation of IT investment projects. And also, It provides numbers and percentages that measure the return on investment or return on investment and show the value of these services.
It is essential to correctly calculate the ROI of a particular IT investment, not falsify the results and thus obtain a realistic figure (e.g., costs).
Therefore, costs associated with investing in the technology should itemized to provide a realistic estimate of the investment required. And also, including operating expenses, support costs, etc.
The income from investments in IT is more difficult to calculate since this must be tangible and inexpensive, and these advantages or income are often not exclusively of a financial nature (e.g., higher customer satisfaction or competitive advantage). In this case, any improvement through the investment in technology (process improvement and automation) must analyzed.
Using the estimated costs and revenues of the IT investment, you can calculate the return on investment and determine the performance and feasibility of the investment project.
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