How to Calculate ROI: Return on Investment Formula and Examples

What Is ROI?

Return on Investment (ROI) measures the profitability of an investment relative to its cost. It's expressed as a percentage, making it easy to compare investments of different sizes. A 100% ROI means you doubled your money. A -50% ROI means you lost half.

The ROI Formula

ROI = (Net Return ÷ Cost of Investment) × 100

Where Net Return = Total Returns - Total Investment. If you invest $10,000 and get back $15,000: Net Return = $5,000. ROI = ($5,000 ÷ $10,000) × 100 = 50%.

Step-by-Step Calculation

1. Identify the total cost of your investment (include ALL costs)
2. Calculate the total returns you received
3. Subtract cost from returns to find net profit
4. Divide net profit by cost
5. Multiply by 100 to get the percentage

Use our free ROI Calculator to get instant results.

Real-World ROI Examples

• Marketing: Spend $2,000 on ads → generate $10,000 in sales. ROI = ($10,000 - $2,000) ÷ $2,000 × 100 = 400%
• Real Estate: Buy for $200,000, spend $20,000 on renovations, sell for $260,000. ROI = ($260,000 - $220,000) ÷ $220,000 × 100 = 18.2%
• Stock Market: Buy 50 shares at $100 each = $5,000. Sell at $130 each = $6,500. ROI = ($6,500 - $5,000) ÷ $5,000 × 100 = 30%
• Business Equipment: Buy a $15,000 machine that saves $5,000/year in labor over 4 years. Total savings = $20,000. ROI = ($20,000 - $15,000) ÷ $15,000 × 100 = 33.3%

Annualized ROI: Accounting for Time

Basic ROI ignores time. A 50% ROI over 1 year is excellent. Over 5 years, it's just 8.4% annually. The annualized ROI formula:

Annualized ROI = (1 + ROI)^(1/years) - 1

Example: 50% ROI over 3 years = (1.50)^(1/3) - 1 = 14.5% per year.

Common ROI Mistakes

• Ignoring costs — Factor in fees, taxes, maintenance, and your time
• Annualizing incorrectly — Always annualize when comparing investments of different lengths
• Survivorship bias — Failed investments don't report their ROI
• Opportunity cost — An 8% ROI is bad if the S&P 500 returned 12%

Use Our Free ROI Calculator

Our ROI Calculator makes it instant. Just enter your investment and returns, and get your ROI, net profit, and total returns in seconds. For deeper metrics, check our Profit Margin Calculator and Break Even Calculator.