The Personal MBA

Master the Art of Business

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.

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What Is 'Return on Investment (ROI)'?

Return on Investment (ROI) is the value created from an investment of time or resources.

ROI can help you make decisions between competing alternatives by asking yourself the question: what brings a bigger ROI?

The return on every investment is always directly related to how much the investment costs. The more you spend, the lower your return.

Every future ROI calculation is a semi-educated guess. Nothing is a sure bet, you can only know your exact ROI after your investment is made.

Josh Kaufman Explains 'Return on Investment'

When you invest in something, you expect it to provide more value than you paid for it. Knowing how to estimate how much you'll receive versus how much you'd invest is a very useful skill.

Return on Investment (ROI) is the value created from an investment of time or resources.

Most people think of ROI in terms of currency: you invest $1,000 and you earn $100, that's a 10% return on your investment: ($1,000 + $100) / $1,000 = 1.10, or 10%. If your ROI is 100%, you've doubled your initial investment.

Return on Investment can help you make decisions between competing alternatives. If you deposit money in a savings account, the return on your investment will be equal to the interest rate that the bank gives you to hold your money.

Why put your money in an account that pays 1% interest if you can deposit that money in an account that pays 2%, with no difference in risk?

The usefulness of Return on Investment extends far beyond money: you can use it for other Universal Currencies as well.

"Return on Invested Time" is an extremely useful way to analyze the benefits of your effort. If you were forced to work 24 hours a day non-stop for a year in exchange for $1 million dollars, would you do it? When you look at the return versus the cost to your time and sanity, it's not worth it.

The return on every investment is always directly related to how much the investment costs. The more you spend (in terms of both money and time), the lower your return. Even "sure bets" like buying a house or getting a college degree aren't wise if you pay too much for them.

Every estimate of return is speculative-you never know how it'll actually turn out. Calculating returns is an exercise in predicting the future, which is fundamentally impossible.

Every ROI estimate is a semi-educated guess. You can only know your ROI for certain after the investment is made and the returns collected.

Nothing in this world is a sure bet-always take into account the risk of something going wrong before making an investment, no matter how high the ROI appears to be.

Questions About 'Return on Investment'


"Wise are those who learn that the bottom line doesn't always have to be the top priority."

William A. Ward, aphorist


From Chapter 5:

Finance


https://personalmba.com/return-on-investment/



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The Personal MBA

Master the Art of Business

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.

Buy the book:


About Josh Kaufman

Josh Kaufman is an acclaimed business, learning, and skill acquisition expert. He is the author of two international bestsellers: The Personal MBA and The First 20 Hours. Josh's research and writing have helped millions of people worldwide learn the fundamentals of modern business.

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