How to Calculate ROI (Return on Investment)
ROI — Return on Investment — is the number people reach for to answer one question: "was it worth it?" Whether it's a marketing campaign, a piece of equipment, or a stock, ROI expresses the return as a percentage of what you put in. It's simple to calculate and easy to misuse, so let's cover both.
The ROI formula
ROI is your net gain divided by your cost, as a percentage:
ROI = (Gain − Cost) ÷ Cost × 100
"Gain" is what you got back; "Cost" is what you spent. The result tells you how much you earned for every dollar invested.
A worked example
You spend $2,000 on a marketing campaign and it generates $5,000 in sales:
(5,000 − 2,000) ÷ 2,000 × 100 = 3,000 ÷ 2,000 × 100 = 150% ROI
A 150% ROI means you made $1.50 in profit for every $1 spent — a strong result. A negative ROI means you lost money; a 0% ROI means you broke even.
The trap: ROI ignores time
This is the most important caveat. A 150% ROI sounds great — but over what period? Earning 150% in one year is excellent; earning it over ten years is mediocre. Because basic ROI doesn't account for how long the money was tied up, always pair it with a timeframe, or use annualised ROI to compare investments of different durations fairly.
Other things ROI leaves out
Plain ROI also ignores risk, hidden costs, and the value of money over time. A risky bet and a safe one can show the same ROI while being very different propositions. Use ROI as a clear headline number, then look deeper before deciding. Investopedia covers the variations well.
Calculate yours in seconds
Our free ROI calculator gives you the percentage instantly from your cost and return. For the compounding side of investment growth, see our guide to compound interest.
Bottom line
ROI is net gain over cost, expressed as a percentage — a quick, powerful gauge of whether something paid off. Just never read it without a timeframe, and remember it says nothing about risk. Use it to compare like with like, and it becomes one of the most useful numbers in business and investing.
