How to calculate ROI
- Enter the amount invested and the amount returned (sale value, or current value plus any income received).
- Add any extra costs such as brokerage, fees or taxes.
- Enter how long you held the investment to see the annualized return.
ROI formulas
ROI = (Amount returned − Amount invested − Costs) ÷ (Amount invested + Costs) × 100
Annualized ROI = (Final value ÷ Total invested)^(1 ÷ years) − 1
Example: invest 200,000 and get back 265,000 after 2.5 years. ROI = 65,000 ÷ 200,000 = 32.5%. Annualized, that is (265,000 ÷ 200,000)^(1/2.5) − 1 = 11.9% per year.
Why annualized ROI matters
Total ROI ignores time. A 30% return in one year is far better than a 30% return over five years. Annualized ROI (also called CAGR — compound annual growth rate) converts every investment to a yearly rate so you can compare them fairly with each other, with a bank deposit rate, or with inflation.
Using ROI in business
- Marketing: ROI = (Revenue from campaign − Campaign cost) ÷ Campaign cost. For ads, also look at ROAS and break-even ACoS with our ACoS Calculator.
- Inventory: for resellers, ROI on product cost shows how hard your money works. Our FBA Calculator shows ROI per unit.
- Equipment and software: compare the cost with the time or money saved over its useful life.
Limitations
- ROI does not measure risk — a high-ROI investment may also be much more likely to lose money.
- It ignores the timing of cash flows in between; for investments with many deposits and withdrawals, IRR or XIRR is more accurate.
- Remember inflation: a 6% annual return with 8% inflation is a loss in purchasing power.
Frequently asked questions
What is a good ROI?
It depends on risk and time. Compare annualized ROI with alternatives: bank deposit rates, inflation and the long-term return of a broad stock index.
What is the difference between ROI and annualized ROI?
ROI is the total return over the whole period. Annualized ROI converts it into an equivalent yearly rate.
Can ROI be negative?
Yes. A negative ROI means you got back less than you put in.
Is ROI the same as profit margin?
No. ROI compares profit with the amount invested; profit margin compares profit with revenue.