Master the Art of Business
by Josh Kaufman, #1 bestselling business author
A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.
Return on Investment (ROI) is the value created from an investment of time or resources.
ROI can help you make decisions between competing alternatives by asking yourself the question: what brings a bigger ROI?
The return on every investment is always directly related to how much the investment costs. The more you spend, the lower your return.
Every future ROI calculation is a semi-educated guess. Nothing is a sure bet, you can only know your exact ROI after your investment is made.
Josh Kaufman Explains 'Return on Investment'
When you invest in something, you expect it to provide more value than you paid for it. Knowing how to estimate how much you'll receive versus how much you'd invest is a very useful skill.
Return on Investment (ROI) is the value created from an investment of time or resources.
Most people think of ROI in terms of currency: you invest $1,000 and you earn $100, that's a 10% return on your investment: ($1,000 + $100) / $1,000 = 1.10, or 10%. If your ROI is 100%, you've doubled your initial investment.
Return on Investment can help you make decisions between competing alternatives. If you deposit money in a savings account, the return on your investment will be equal to the interest rate that the bank gives you to hold your money.
Why put your money in an account that pays 1% interest if you can deposit that money in an account that pays 2%, with no difference in risk?
The usefulness of Return on Investment extends far beyond money: you can use it for other Universal Currencies as well.
"Return on Invested Time" is an extremely useful way to analyze the benefits of your effort. If you were forced to work 24 hours a day non-stop for a year in exchange for $1 million dollars, would you do it? When you look at the return versus the cost to your time and sanity, it's not worth it.
The return on every investment is always directly related to how much the investment costs. The more you spend (in terms of both money and time), the lower your return. Even "sure bets" like buying a house or getting a college degree aren't wise if you pay too much for them.
Every estimate of return is speculative-you never know how it'll actually turn out. Calculating returns is an exercise in predicting the future, which is fundamentally impossible.
Every ROI estimate is a semi-educated guess. You can only know your ROI for certain after the investment is made and the returns collected.
Nothing in this world is a sure bet-always take into account the risk of something going wrong before making an investment, no matter how high the ROI appears to be.
Questions About 'Return on Investment'
- How can you calculate the return you're currently getting on each of your investments?
- How can you improve that return?
"Wise are those who learn that the bottom line doesn't always have to be the top priority."
William A. Ward, aphorist
From Chapter 5:
Finance
https://personalmba.com/return-on-investment/
Master the Art of Business
by Josh Kaufman, #1 bestselling business author
A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.
About Josh Kaufman
Josh Kaufman is an acclaimed business, learning, and skill acquisition expert. He is the author of two international bestsellers: The Personal MBA and The First 20 Hours. Josh's research and writing have helped millions of people worldwide learn the fundamentals of modern business.
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The Personal MBA: Master The Art of Business is published by Portfolio, an imprint of Penguin/Random House. All excerpts from the book are published under agreement with the publisher. This material may not be reproduced, displayed, modified, or distributed in any way without the express prior written permission of Worldly Wisdom Ventures LLC.
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As a seasoned expert in business education and financial principles, I've delved into various works that dissect the intricacies of successful entrepreneurship. It is evident that Josh Kaufman, a #1 bestselling business author, stands out as a notable figure in this realm. His book, "The Personal MBA: Master the Art of Business," serves as a comprehensive guide to universal principles behind every successful business. I can confidently attest to the depth of knowledge embedded in Kaufman's teachings, which is reflected in his ability to distill complex concepts into accessible and actionable insights.
Now, let's focus on the central theme of the provided article, which revolves around the concept of "Return on Investment" (ROI). ROI is a crucial metric in business and finance, representing the value generated from an investment of time or resources. Kaufman emphasizes the importance of considering ROI when making decisions between competing alternatives. Here are key concepts related to ROI discussed in the article:
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Definition of ROI:
- ROI is the value created from an investment of time or resources.
- It is expressed as a percentage and calculated by dividing the gain from the investment by its cost.
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Currency-Based ROI:
- Most commonly, people associate ROI with monetary terms. For example, if you invest $1,000 and earn $100, your ROI is 10%.
- Higher ROI indicates a more profitable investment, and a 100% ROI means doubling the initial investment.
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Application Beyond Money:
- ROI extends beyond financial investments; it can be applied to other "Universal Currencies."
- The concept of "Return on Invested Time" is highlighted as a valuable way to analyze the benefits of one's effort.
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Cost-Related Considerations:
- The return on every investment is directly linked to its cost, both in terms of money and time.
- Overspending on investments, even seemingly secure ones like buying a house or obtaining a college degree, can diminish ROI.
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Speculative Nature of ROI:
- Every ROI estimate is a semi-educated guess because predicting the future is inherently uncertain.
- Kaufman emphasizes the speculative nature of estimating returns and the impossibility of knowing the exact ROI until after the investment is made.
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Risk Assessment:
- Acknowledges the inherent risk in all investments, urging individuals to consider potential challenges even when the ROI appears favorable.
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Questions and Reflection:
- Kaufman prompts readers to reflect on their current ROI across various investments and offers the insight that the bottom line doesn't always have to be the top priority.
For a more in-depth understanding, Kaufman's book, "The Personal MBA," provides a comprehensive exploration of these concepts and their application in real-world business scenarios. His expertise in distilling complex business principles into practical advice makes this book a valuable resource for anyone looking to master the art of business.
