# Everything You Ever Wanted to Know about Calculating ROI but Were Afraid to Ask

Learn from my mistakes friends, don’t skip ROI calculations even in situations where you’re driven by enthusiasm for a direction. Doing ROI calculations isn’t about completely shutting down a direction, it can often be about making the right choices inside of an overall direction. For instance I might say I’m planning to expand our focus on SEO, I want to do that, I see benefits to doing that… but the question is what tools are worth buying in that space? There are vast differences in the costs of tools, and what about services in that area, should we be hiring a specialist, a consultant, a full-time or freelance SEO focused marketer to join our team? The costs can range here from very minimal all the way to taking on thousands of dollars per month in new expenses over the long-term. It’s hugely important to weight each option using ROI calculations.

## A simple introduction to ROI calculation

In it’s simplest form ROI is your total profit divided by your investment. If your profit is \$50,000 and you’re investment was \$100,000 then we divide the profit (P) by investment (I) to get the return (R).

P / I = R

We can then multiple R (return) by 100 to get this as a percentage which is how ROI is often presented and communicated in reports. Let’s run our 50K profits on a 100K investment using this formula:

\$50,000 (P) / \$100,000 (I) = 0.5 (R)

Then 0.5 (R) multiplied by 100 equals 50% ROI.

## Factoring Expenses Over Time into ROI Calculations

The textbook explanation of ROI can be frustratingly unhelpful in the real world. Because the simple formula P/I = R or ( P / I = R ) * 100 = ROI, this simple formula only helps us if we know the value of P and I with some level of precision. In the real world we often have difficulty calculating these figures even for an existing business, let alone for a projected investment. And what about when you’re trying to isolate one investment decision that is part of a larger business?

Before we think about too many problems at once let’s focus on expenses that increase our investment. This is very common. We start with let’s say a piece of equipment or a new software license. Then we hire somebody to consult or help us do part of a project. Then we have some ongoing costs associated. All these need to be tracked if we are to be able to say definitively, this is the accurate value of “I” in our ROI calculation. And if we’re going back in time to examine an investment, we have to do our best to aggregate all applicable costs accurately.