The short answer
ROI = (final value − amount invested) ÷ amount invested × 100. Invest $10,000, end up with $13,500, and your ROI is 35%. To compare investments held for different lengths of time, convert it to an annualized return: 35% over three years is about 10.5% a year.
ROI — return on investment — is the simplest way to answer “was it worth it?” It works for shares, property, a new piece of equipment or an ad campaign. It's also easy to misuse, because the basic version ignores time, and time changes everything.
On this page
The basic calculation
- 1Work out the gain: final value − what you put in. $13,500 − $10,000 = $3,500.
- 2Divide by what you put in: $3,500 ÷ $10,000 = 0.35.
- 3Multiply by 100: 35% ROI.
“Final value” should include everything you got back — sale proceeds plus any dividends, rent or interest received — minus fees, commissions and other costs. Leave those out and ROI looks better than it was.
Why you need the annualized return
Which is better?
| Investment A | Investment B | |
|---|---|---|
| Invested | $10,000 | $10,000 |
| Final value | $13,500 | $12,500 |
| Held for | 3 years | 18 months |
| ROI | 35% | 25% |
| Annualized return | 10.5% a year | 16.0% a year |
A has the bigger ROI, but B earned its return twice as fast. Annualizing puts both on a yearly footing: (final ÷ invested)1 ÷ years − 1. This is the same idea as CAGR, the compound annual growth rate.
ROI for marketing and business decisions
The same formula works: (revenue gained − cost) ÷ cost. A campaign that costs $2,000 and brings $5,000 of extra profit has a 150% ROI. Use profit, not revenue — $5,000 of sales on a product with a 30% margin is only $1,500 of profit, which would be a loss.
The profit margin calculator helps turn sales into profit before you calculate ROI.
What ROI doesn't tell you
- Risk. A 10% return from a savings account and 10% from a single speculative stock are very different achievements.
- Borrowed money. With a mortgage, return on your cash can be much higher (or lower) than the property's own return. See rental yield for the property side.
- Inflation. A 5% yearly return with 3% inflation is about 2% in real terms.
- Your time. A side business with a great ROI may still pay less than minimum wage per hour.
Frequently asked questions
How do you calculate ROI?
ROI = (final value − amount invested) ÷ amount invested × 100. $10,000 that becomes $13,500 is a 35% ROI.
What is a good ROI?
It depends on the risk and time. Over long periods, broad stock markets have historically returned somewhere around 7–10% a year before inflation, which is a common benchmark for investments.
What's the difference between ROI and annualized return?
ROI is the total return over the whole period. Annualized return is the equivalent steady yearly rate, which lets you compare investments held for different lengths of time.
Can ROI be negative?
Yes. If the final value is less than what you put in, ROI is negative — a loss.
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