Return on Investment (ROI) is a financial metric that measures how profitable an investment is compared to its cost. In hospitality, ROI helps us see how our money is working for us. It's calculated by dividing the profit from an investment by the cost, then multiplying by 100 to get a percentage. For example, if you invest £10,000 in new kitchen equipment and it generates £15,000 in extra revenue, your ROI would be 50%.
ROI is a key performance indicator in hospitality because it helps us make good business decisions. Whether you're running a small café or a large hotel chain, knowing your ROI helps you allocate your resources. It informs decisions on everything from menu changes to property renovations. By tracking ROI you can see what's working and what needs to be re-thought.
Let’s say you're a restaurant manager thinking of investing in a new pizza oven. The oven costs £5,000 but you estimate it will increase your pizza sales by £2,000 per month. After accounting for extra ingredients and labour, your monthly profit increase is £1,500. In just over three months the oven will have paid for itself. After a year your ROI would be 260% - a good return! This ROI calculation gives you the confidence to go ahead and buy the oven knowing it will make a big difference to your profits.'