What is return on investment (ROI)?
Return on investment, commonly called ROI, is a measure that you can use to evaluate the financial performance of an investment or program. In simpler terms, it tells you what you’re getting back in return for what you’re putting in. A good ROI is typically one that exceeds your costs or exceeds your specific business goals.
ROI is a relative measure, though. What’s considered a “good” ROI can vary widely depending on factors like industry, investment type, and your business goals. It will also depend on your expectations, risk tolerance, and the opportunity cost of investing in other ventures. In general, a positive ROI indicates that an investment generated more returns than the initial investment cost.
Calculating ROI is straightforward, and it helps you arrive at a percentage.
ROI calculation = (Net Profit/Cost of Investment) x 100%
Here’s a simple example: If you spent $100,000 on your partner program in a given year and it brought in $150,000 in profit, your ROI would be 50%. If you earned $200,000, it would be 100%.
When managing your partner program, remember that short-term ROI isn’t the only measure of value. A channel partner could also bring value in the form of market insights, customer relationships, and brand reputation, which can contribute to long-term revenue growth for your business.