ROI Calculator
Return on investment is the workhorse ratio for judging whether something was worth doing — a rental renovation, an ad campaign, a piece of machinery. It is simple by design, and the simplicity is exactly where it misleads if you forget what it leaves out.
Inputs
Result
50%
Net gain 5,000
How the roi calculator works
ROI = (Gain − Cost) ÷ Cost × 100. Gain is everything the investment returned; Cost is everything you put in, including fees and your own outlay of time if you price it.
The result is a percentage of the amount risked, with no reference to how long the money was tied up.
To compare projects of different lengths, annualise: (1 + ROI)^(1 ÷ years) − 1, which is simply CAGR.
Worked example: a 12,000 kitchen refit on a rental
- Cost: 12,000 materials and labour, plus 900 in lost rent during the work = 12,900.
- Return: rent rises from 1,450 to 1,610 a month, worth 1,920 a year.
- After three years the gain is 5,760. ROI = (5,760 − 0) ÷ 12,900 × 100 = 44.7% on the outlay so far.
- Annualised, that is 1.447^(1/3) − 1 ≈ 13.1% a year — a very different impression from '45% return'.
Common mistakes to avoid
Leaving time out of the comparison
A 45% ROI over three years and a 45% ROI over ten months are not comparable. Annualise before ranking options.
Undercounting the cost side
Fees, taxes, downtime and your own unpaid hours belong in Cost. Excluding them is the most common way ROI gets inflated.
Counting revenue as gain
Gain is net of the costs required to earn it. Using gross revenue on a marketing campaign can turn a loss into an apparent success.
Frequently asked questions
What is a good ROI?
It depends on the alternative. If an index fund would have returned 9% a year for the same period at lower risk, a project returning 6% annualised destroyed value even with a positive ROI.
How do I calculate ROI on marketing spend?
Use gross profit from the campaign, not revenue: (profit − spend) ÷ spend. Attribution windows matter, so fix the period before you measure.
What is the difference between ROI and NPV?
ROI is a ratio that ignores timing; NPV discounts each future cash flow to today's value. For multi-year projects, NPV is the more rigorous test.
Can ROI be over 100%?
Yes — it simply means the gain exceeded the amount invested. It says nothing about how long that took.
Should ROI include inflation?
For horizons beyond a couple of years, deflating the gain gives a real ROI that better reflects purchasing power.
Learn more
ROI Is a Useful Number That Hides Two Important Things
Return on investment ignores time and risk. Both omissions can turn a bad decision into a persuasive slide.
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