What is Return on Innovation and Why Should You Care?
Are you scratching your head wondering what Return on Innovation (ROIn) is and why it should matter to you? Simply put, Return on Innovation measures the financial return that a business gains from its investment in innovation projects. It basically answers the question: Is your innovation paying off?
Imagine you've spent big bucks on developing a cutting-edge gadget. Naturally, you want to know if your investment is worth it. That's exactly where ROIn steps in. This metric helps you assess the profitability of your innovation and gives you the green light on whether to continue, pivot, or halt your current innovation strategies.
Why should you care? Because a positive Return on Innovation means your investment is generating profit, which can fuel further growth and more innovative projects. On the flip side, a negative return can act as a wake-up call, signaling a need to re-evaluate your approach.
How to Calculate Return on Innovation
The formula is straightforward:
[\text{ROIn} = \frac{\text{Profit Generated by Innovation}}{\text{Cost of Innovation}} \times 100]
Where:
- Profit Generated by Innovation is the financial gain attributable to your innovation efforts
- Cost of Innovation is the total investment in research, development, and implementation
Calculation Example
Let's say your company invested $10,000 in developing a new product, and it generated $15,000 in profit.
[\text{ROIn} = \frac{15000}{10000} \times 100 = 150%]
Your Return on Innovation is 150%, meaning you earned $1.50 for every dollar invested in innovation.
Using ROIn Strategically
- Track over time: Monitor how your innovation ROI changes across different projects
- Compare projects: Use ROIn to prioritize which innovations deserve continued investment
- Set benchmarks: Establish minimum ROIn thresholds for approving innovation budgets
- Guide decisions: Let ROIn inform whether to continue, pivot, or stop innovation initiatives