Return on Investment, or ROI, is a widely used metric that helps determine the value gained from an investment relative to its cost. In business, it’s a way of asking, “Did this investment pay off?” Calculating ROI is particularly useful for initiatives like coaching or training, where the impact may not be immediately visible in revenue but still has measurable outcomes.
The basic formula for ROI is straightforward:
ROI (%) = (Net Profit from Investment / Cost of Investment) x 100
This equation shows how much profit (or loss) was generated as a percentage of the investment cost. Let’s break down how to apply this to coaching or training.
Example for ROI Calculation in Coaching
Imagine a company invests $60,000 in a leadership coaching program. After a year, this program leads to cost savings of $160,000 and productivity gains worth $30,000.
Calculate Net Profit: Add the total financial gains from the investment (cost savings + productivity gains) and then subtract the initial investment.
Total Gains = $160,000 +$30,000 = $190,000
Net Profit = $190,000 − $60,000 = $130,000
2. Calculate ROI: Now, plug the net profit and investment cost into the ROI formula.
Interpretation
In this case, the ROI for the coaching investment is 216.67%, which means the company earned more than double the original investment, making it a highly beneficial financial decision.
This high ROI percentage illustrates the significant impact that a well-executed coaching program can have on reducing costs and enhancing productivity, ultimately contributing to substantial financial returns.
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