How ROI is calculated
Return on investment compares what you gained with what you put in. It's the simplest way to compare options that cost different amounts, such as two advertising channels or buying versus leasing equipment.
ROI = (Amount returned − Amount invested) ÷ Amount invested × 100
Annualized ROI = (Amount returned ÷ Amount invested)1 ÷ years − 1
Annualized ROI = (Amount returned ÷ Amount invested)1 ÷ years − 1
Example
A $10,000 investment that returns $15,000 over two years has a 50% ROI. Annualized, that's (1.5)½ − 1 = 22.47% per year, which is the fairer figure to compare against a one-year option.
Using ROI well
- Count profit, not revenue. For a marketing campaign, use the gross profit from the extra sales, not the sales themselves.
- Include all costs. Time, setup fees, training and maintenance belong in the amount invested.
- Compare over the same period. Annualized ROI makes projects of different lengths comparable.
Frequently asked questions
What is a good ROI?
It depends on risk and time. Compare against your cost of capital, such as the interest rate on your business loan, and against your other options.
Is ROI the same as ROAS?
No. Return on ad spend divides revenue by ad cost. ROI uses profit and should include all costs.
Can ROI be negative?
Yes. If you get back less than you invested, ROI is negative.
Results are estimates for planning and are not financial, tax or legal advice. See our methodology.