What is ROI?

ROI, or return on investment, is a financial calculation that measures the success of an investment relative to its costs. The ROI formula is simple: (Gain of Investment) - (Cost of Investment) / (Cost of Investment). The result is expressed as a percentage, with a positive percentage being a good result and a negative percentage, bad.

ROI is often calculated when making decisions about call center investments, such as software purchases, comparing on-premises and hosted solutions, outsourcing, etc. Applying the simple ROI formula to these scenarios can be a complex undertaking because it requires a detailed understanding of current and future costs, as well as an ability to forecast future tangible benefits. For example, the Gain of Investment portion of the formula is a combination of additional revenue that will be realized from the investment and all costs that will be eliminated.

Organizations that conduct an ROI analysis may want to consider both a best- and worst-case scenario, with the understanding that the actual results will fall somewhere in between. Additionally, an ROI analysis may not be enough to make a decision. Organizations may want to supplement it with a payback period analysis, as well as calculating the internal rate of return (IRR).

Doing a thorough ROI analysis may be a significant undertaking, but organizations that invest the time and effort will be in a position to make sound, fact-based decisions. And, with best practices, they can evaluate the effectiveness of their analysis and take into consideration key factors for the next investment decision.