ROI - Return on Investment Definition / Meaning

ROI – Return on Investment

What is the meaning / definition of ROI in the hospitality industry?

ROI is a profitability ratio used to evaluate the gain or loss generated on an investment. In other words, it indicates how much money was earned on an investment, expressed as a percentage of the purchasing price/ initial investment.

How to calculate ROI:

Formula: ROI = (investment revenue – investment cost) / (investment cost)

This formula is pretty simple and is adaptable to different kinds of investments such as marketing campaigns or hotel asset acquisitions. However, its flexibility has a downside; this ratio can be manipulated according to one’s perception. The use of the same inputs is essential, to have a good comparison.

Also note that this indicator does not take the time value of money into consideration.

See Also:

IRR
Feasibility Study
NPV

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About the Author:

As CEO and Founder of XOTELS, Patrick Landman has made it his mission to turn independent hotels and resorts into local market leaders. XOTELS´ diverse expertise and deep-knowledge across revenue management consulting, hotel management, asset management, and hotel consulting, enables us to drive results for independent boutique hotels, luxury resorts, and innovative lodging concepts. Below you will find opinion articles written by Patrick Landman.

ROI – Return on Investment

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