What is Return On Investment?
Return on Investment is a ratio that measures the performance of said investment. You can use it to evaluate potential or past profitability.
ROI = (Return – Investment) / Investment x 100)
Potential ROI can be estimated through bench marking of comparable segments, under similar market conditions. This ratio can be recalculated with your own data, when you have it.
A positive ROI indicates that an investment has (or can) generate a profit, while a negative ROI indicates a loss.
It is important to note that ROI is just one of the many factors to consider when making investment decisions. Other important factors include the investment’s risk level, the length of time before the investment is expected to generate a return, and the investor’s overall financial goals and risk tolerance.
ROI and Risk Tolerance
ROI and risk tolerance are related concepts. The former is a measure of the (potential or actual) profits from an investment, while the latter is the level of risk an individual or organization is willing to take on.
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A higher ROI generally indicates greater potential profits, but it often means taking on more risk.
When assessing a marketing campaign, businesses will often consider both the potential ROI and the level of risk involved. Some organizations may be comfortable taking on higher levels of risk in order to achieve a higher ROI, while others may prefer to take on less risk in order to minimize the potential for loss.
Where do you stand on risk?
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