Being able to calculate the return on investment (ROI) in business is an invaluable calculation in business. It enables business owners to to determine the amount of business brought in from investing a certain amount of money and resources.
At Merchant Advance this is something we discuss with our clients when they first apply for funding. We want to help prospective clients decide how to maximize their use funds and ensure they are calculating how their investment will impact the growth of their business. Running the numbers and making a calculated ROI decision is very important. The following example & instructions display step by step how ROI is calculated.
Example: X company invests $10,000 into making upgrades to provide a new service. The X company then has 500 customers that year purchase the new service. The amount of new business sold from the new service totaled $25,000. The equation to calculate the return on investment is: ROI = (return on investment – initial investment) / investment*(100)
How to Calculate
Firstly start with the return on invesment – fro the example above it was $25,000
Next, mark down the initial investment X company made of $10,000 to expand its services from
Now plug is into the equation: ROI = ($25,000 – $10,000) divided by $10,000 and then multiplied by 100
Once punched into a calculator you find out in this case the ROI is 150%. Therefore X company has a 150% return on its investment.
Once clients have calculated their estimated ROI, they become much more knowledgeable about their financing decisions. With a Merchant Advance all costs are given up front and as there is no interest rate the repayment amount never grows. If you are at all unsure how a Merchant Advance works, please watch this quick one minute video http://www.youtube.com/watch?v=Vhv8FbNLRK4