Steps to calculate the ROI of a project

[Ehsanuls55]

ROI is the basis for evaluating whether a project generates value or consumes resources. The goal is to know if all that effort is worth it.

So how do you calculate ROI for a project? Let’s look at it step by step.

Step 1: Determine the total cost of the investment
The first step in calculating the ROI of a project is to identify all associated costs. This includes obvious expenses such as materials, labor, equipment, tools, and any software or services purchased for the project.

But we must not forget the hidden costs: utilities, administrative support and even time spent on meetings and planning.

It all adds up, so it's essential to be thorough. Once you have a clear view of the total investment, you'll have vp risk email lists the basis for further calculations.

Step 2: Calculate net profit
The next step is to determine the net benefit, which is the financial gain from the project minus the total costs.

Net profit formula

This step is easy with a completed project, as the revenue and costs are already in your hands. However, if you are still drawing up plans, the calculation is done with estimated revenue figures drawn from research, past project results, and industry standards.

Step 3: Apply the ROI formula
In this step, you calculate how the benefits compare to the required investment.

ROI formula

ROI is the return you get for every dollar spent.

For example, if your project generates $10,000 in profit and costs you $5,000 to run, the ROI would be:

Example of ROI formula

This means you are doubling your investment, making the project highly profitable.

Example of calculating the ROI of a new marketing campaign
Let's look at a practical example. Let's say you're overseeing a new marketing campaign.

Total expenses include $2,000 in creative agency fees, $3,000 in staff time, and $1,000 in software licenses, paid ads, etc., resulting in a total investment of $6,000. Once the campaign is launched, it generates $15,000 in new revenue.