Return on investment (ROI) is a financial measure that compares the benefit or return generated by an investment with the cost of that investment. Restaurant owners use ROI to evaluate purchases such as ovens, refrigeration equipment, software, renovations, training programs and marketing campaigns.
ROI % = Net return from investment ÷ Investment cost × 100
The definition of “net return” should be consistent and should account for the costs directly associated with the investment. For a multi-year project, the time period and treatment of operating costs should be stated.
A $20,000 combi oven generates $10,000 in annual net savings through reduced labour, waste and energy costs. If those savings are measured after relevant additional operating costs, the simple annual ROI is 50% ($10,000 ÷ $20,000), and the simple payback period is two years. Actual results depend on usage, maintenance, financing and the equipment’s useful life.
ROI expresses the return relative to the investment cost as a percentage. The payback period estimates how long it takes for cumulative net cash benefits to recover the initial investment. A project can have a short payback but a different long-term ROI depending on its life and ongoing costs.
ROI helps compare investment options, prioritize limited capital and test whether expected benefits justify the cost. It should be considered alongside cash flow, risk, useful life, maintenance, staff training and operational impact.
Chef’s tip: Use realistic savings and include installation, training, maintenance and other costs. Do not count the same labour or waste saving twice in the calculation.
Key distinction: ROI measures the return relative to the investment cost; it is not the same as revenue growth, gross margin or cash payback.
This term is one of hundreds covered in depth across OCS courses, learning paths, and 1-on-1 coaching with Chef Eric.
