Return on investment and return on capital are two ratios that measure your business. In other words, we talk about the important metrics that is used by managers and calculates the profit you earned, considered in percentage. In many cases it can provide you with the assessment of how successful your products and services are.
Moreover, it gives you information regarding the capital you operate with and how it contributes in growing of your business. However, sometimes people confuse these terms. Thus, what is the difference?
Return on investment is focused on your cash flow. Meaning that it takes into consideration investments made by your company alongside potential consequences that are related to the aforementioned cash flow. By contrast, return on capital scrutinizes the efficiency of capital used by your organization. There are 3 types of what can be considered as revenue – total revenue, gross profit and net profit.
When it comes to measuring effectiveness of markering strategies, variables that should be taken into consideration consist of marketing investment and gross profit used in campaign. Marketing campaigns are the actual investments that should be measured the same way as any other investments.
Following this further, the employment of ROI allows you to rationialize your investments. By using acurate arguments you can justify your decisions and move away from the idea the investments are not smooth enough.