What is ROI?
What Is Return On Investment (ROI)
When you are considering investing in a Business Opportunity, one of your concerns may be the amount of return you could achieve. Is there a typical Business Opportunity ROI?
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How to Calculate and Compare Business Opportunities (ROI)
Before you invest in a Business Opportunity, you’re likely to think about what the return on your investment might be. Why should you invest in a Business Opportunity business rather than the stock market, for example? A Business Opportunity ROI is not quite as easy as a stock ROI to calculate, but it is certainly more exciting to contemplate, and certainly another way to evaluate a Business Opportunity opportunity.
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What is ROI?
Before we examine how to calculate the ROI of a Business Opportunity business, let’s define for ourselves what ROI is. When considering a bond, the ROI is easy to calculate. Let’s say that you invested $100,000 in a bond three years ago. Your total return (the interest you received) is $12,000. The return on your investment is 12%. Calculated by year, your compound annual growth rate (CAGR) is 3.85%.
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For stocks, the calculation is a little more complex. You must include the capital gain and the dividends you receive. Let’s say that you bought $100,000 of stock when the share price was $5. After three years, the share price has increased to $6.25.
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Your stock is now valued at $125,000. However, you have also received dividends totaling $7,500 during this time. Therefore, your total return is $32,500, or 32.5%. This equates to a CAGR of 9.83%. That’s toward the upper end of what might be considered an average ROI of around 7% to 11% on stocks.
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What is different about a Business Opportunity ROI?
There’s a big difference between investing in stocks and investing in a Business Opportunity. It is very rare that you will be a passive investor when you buy a Business Opportunity. You’ll need to commit time to your business. When calculating your ROI on a Business Opportunity, you’ll need to take this into account. You should certainly expect a higher ROI to compensate for your time.
Let’s start by calculating the return on your invested capital. Just as you would with stocks or bonds.
Consider that after three years, your $100,000 investment has yielded a net profit of $50,000. You started slowly (the first year of a new business is always tough), but now the profits are rolling in nicely – and growing. Your initial investment has produced an ROI of 50% over three years, or 14.47% CAGR.
Good, but what about your time?
Let’s say that before you decided to invest in a Business Opportunity, you were working as an executive in the corporate world. Your salary was $75,000 a year. For the time you work in your new business, you pay yourself an equivalent income. Over three years, you receive a total of $225,000 in salary and $50,000 in net profits. A total return of $275,000, or 275% and a CAGR of 55.36%.
Of course, you might expect a better ROI on your Business Opportunity investment than you would on a bond. Business Opportunity success cannot be guaranteed, and you are compensated by bigger potential returns.
Your time has been fully compensated, and you’ve made a good profit on top. However, the ROI of a Business Opportunity doesn’t stop here.
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Lifestyle – The hidden ROI of a Business Opportunity
Now we come to an element of return on a Business Opportunity investment that is impossible to quantify: the entrepreneurial lifestyle. Only you can calculate what this is worth to you, but here’s a few examples of what you should consider:
• In your current corporate life, much of your day is consumed with mundane tasks that certainly fail to challenge you, definitely fail to excite you, and very often, have you dreaming of an alternative life.
• You currently have a manager, that makes life unbearable on most days, to the point that you no longer enjoy your job.
• Your work hours are not what you had hoped for and does not leave you the freedom to enjoy time with your family, or time to enjoy the things you really love to do.
• You have a vacation home, but you are never able to take advantage of it.
If the Business Opportunity you are considering gives you benefits that address these lifestyle issues, how do you value this? The lifestyle advantage that becoming a Business Opportunity Owner could offer may even outweigh the potential to make more money than you currently do in the corporate world.
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Will your Business Opportunity investment pay a Life-Changing ROI?