Procurement Glossary
Return on investment: profitability indicator for purchasing decisions
November 19, 2025
Return on investment (ROI) is a key profitability indicator that measures the relationship between profit achieved and capital employed. In Procurement , ROI is an important tool for evaluating investment decisions, supplier selection and procurement strategies. Find out below what return on investment means, which calculation methods exist and how you can use this key figure strategically in Procurement .
Key Facts
- ROI is calculated as (profit / capital employed) × 100 and is expressed as a percentage
- Enables objective comparisons of different investment alternatives in Procurement
- Takes into account both direct cost savings and indirect benefits
- Time plays a decisive role in the ROI assessment of procurement projects
- Serves as the basis for budget approvals and strategic purchasing decisions
Contents
Definition: Return on investment
Return on investment is an economic indicator for measuring the profitability of investments and forms the basis for sound purchasing decisions.
Basic calculation and components
ROI is calculated using the formula (profit / capital employed) × 100. In the purchasing context, the capital employed includes direct procurement costs as well as process and implementation costs. The profit results from cost savings, quality improvements and efficiency increases.
- Direct savings through price negotiations
- Indirect benefits through process optimization
- Risk minimization and compliance improvements
ROI vs. other profitability indicators
In contrast to static key figures such as the payback period, ROI takes into account the overall profitability over the investment period. Unlike product costing, ROI focuses on the return on investment instead of unit costs.
Importance of return on investment in Procurement
The ROI enables an objective evaluation of procurement strategies and helps to justify purchasing investments to management. It forms the basis for strategic decisions when changing suppliers, introducing technology and optimizing processes.
Methods and procedures for return on investment
The systematic ROI calculation in Procurement requires structured methods for data collection, evaluation and analysis of investment alternatives.
Data collection and baseline determination
A precise ROI calculation begins with the recording of all relevant cost and benefit factors. The needs analysis forms the basis for identifying measurable potential for improvement.
- Historical cost data and key performance indicators
- Current market prices and benchmarks
- Process costs and resource expenditure
Valuation models and calculation approaches
Different ROI models are used depending on the type of investment. For complex procurement projects, a multidimensional approach is recommended that includes both quantitative and qualitative factors.
Monitoring and success control
Continuous monitoring of the actual ROI enables timely corrections and optimizations. Benchmarking processes support the validation of results and comparison with industry standards.
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Key figures for controlling
Effective ROI management requires a system of key figures that reflect various aspects of return on investment and enable continuous monitoring.
Primary ROI key figures
The basic key figures include the classic ROI, the amortization period and the net present value (NPV). These metrics form the basis for investment decisions and enable comparisons to be made between different procurement alternatives.
- ROI in percent (profit/investment × 100)
- Payback period in months
- Cumulative savings over the project term
Operational performance indicators
Supplementary key figures such as cost avoidance, process efficiency and supplier performance support operational management. The capital commitment period plays an important role in the evaluation of working capital effects.
Qualitative indicators of success
In addition to quantitative metrics, qualitative indicators such as supplier satisfaction, degree of innovation and risk reduction are crucial. These factors have a significant impact on long-term ROI and should be taken into account in balanced stakeholder management.
Risk factors and controls for return on investment
The ROI calculation in Procurement involves various risks that must be minimized through suitable control mechanisms.
Data quality and calculation errors
Incomplete or incorrect data leads to incorrect ROI assessments and suboptimal investment decisions. Systematic market analysis and regular data validation are essential for reliable results.
- Inconsistent data sources and calculation bases
- Neglect of hidden costs and follow-up expenses
- Overestimation of savings potential
Temporal distortions and market dynamics
ROI calculations are often based on static assumptions that can quickly be overtaken by market changes. Volatile commodity prices, currency fluctuations and technological developments have a significant impact on profitability.
Strategic misinterpretations
An isolated focus on ROI can lead to short-sighted decisions that jeopardize long-term strategic goals. Integration into a comprehensive procurement strategy is therefore essential for sustainable success.
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Practical example
An automotive supplier invests 500,000 euros in a digital procurement system. Automated ordering processes and improved supplier integration save 180,000 euros in process costs each year. In addition, optimized negotiations lead to material cost savings of 120,000 euros per year. The ROI is therefore (300,000 euros annual profit / 500,000 euros investment) × 100 = 60% with an amortization period of 20 months.
- Systematic recording of all investment and savings components
- Consideration of both direct and indirect benefits
- Continuous monitoring to validate the predicted values
Trends & developments relating to return on investment
Modern technologies and changing market conditions have a significant impact on ROI calculation and evaluation in Procurement .
Digitalization and AI-supported ROI analysis
Artificial intelligence is revolutionizing ROI calculation through automated data analysis and predictive analytics. AI systems enable more precise forecasts and take into account complex interactions between different influencing factors.
- Automated data acquisition and evaluation
- Predictive analytics for future forecasts
- Real-time ROI monitoring and alerting
Sustainability ROI and ESG factors
Environmental, social and governance aspects are becoming increasingly important in ROI assessments. Companies are integrating sustainability indicators into their investment decisions and evaluating long-term reputational and compliance effects.
Supply chain resilience as an ROI factor
The evaluation of supply chain resilience is becoming an important ROI component. Investments in supplier diversification and risk minimization often only show positive ROI effects in the long term, but are gaining strategic relevance.
Conclusion
Return on investment is an indispensable key figure for strategic purchasing decisions and enables the objective evaluation of procurement investments. The systematic application of ROI methods helps purchasing organizations to optimally allocate resources and generate sustainable corporate success. Modern technologies such as AI and predictive analytics significantly expand the possibilities of ROI analysis and create new potential for data-driven procurement strategies.
FAQ
What is the difference between ROI and payback period?
The ROI measures the percentage profitability of an investment over the entire term, while the payback period only indicates when the investment has been amortized. ROI therefore also takes into account profits after amortization and provides a more comprehensive basis for evaluating long-term investment decisions.
How do you calculate the ROI for complex procurement projects?
For complex projects, all direct and indirect costs and benefits should be recorded. This includes implementation costs, training costs, process optimization and risk reductions. A multi-stage calculation with various scenarios helps to realistically assess the expected ROI.
What typical mistakes should be avoided when calculating ROI?
Common mistakes include neglecting hidden costs, making unrealistic savings assumptions and not taking time values into account. In addition, qualitative factors such as risk reduction or compliance improvements are often not adequately quantified, which leads to an underestimation of the actual ROI.
How often should the ROI of procurement investments be reviewed?
A quarterly review of the ROI is appropriate for most procurement projects. Monthly monitoring can be useful for critical or high-volume investments. It is important to establish threshold values below which immediate corrective measures are initiated.
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