An ROI measures what you gain instead of what you have paid out. This is not necessarily a purely financial term, but what is gained vs. what is lost must be goods, items, services, or something else that is quantifiable and comparable to one another to achieve an accurate ROI and determine how successful the investment ultimately was.
The ROI calculation is as follows: (Benefit-Cost)/Cost = ROI
Accurately calculating your ROI is crucial to determining the true profitability of an investment and as a comparison tool between investments for forecasting or risk analysis.
Most people gained an excellent understanding of this during the Beanie Baby craze when all of a sudden, people realized that they were, in fact, just stuffed animals and were worth nothing more than the materials they were made from. In this case, the ROI for most investors was negative. Remember, the perceived value of goods and collectibles only holds until everyone suddenly stops caring. A basic four-function calculator used to be monstrously expensive. Now it comes built into every thirty-dollar smartphone, along with smartphone.