How to calculate return on investment
ROI tells you how much you gained or lost for every dollar you put in. It works the same way for a stock, a piece of equipment, a rental, a course or an ad campaign, which is why it is the quickest way to compare very different uses of money.
How to use this calculator
- Type the full cost in Amount invested (total cost). Include fees, commissions, shipping or setup costs you paid to get the return.
- Pick Final value if you know what the investment is worth now or sold for, or Net profit or loss if you only know the gain. Use a minus sign for a loss.
- Add the Holding period in years or months to see the annualized ROI. Leave it blank if timing does not matter.
- To rank several options, use Compare investments, enter a cost and final value for each, then press Compare ROI.
The ROI formula
ROI = (final value - amount invested) / amount invested x 100
Annualized ROI = (final value / amount invested)1 / years - 1
The first line is the standard return on investment formula. The second converts a total return into the steady yearly rate that would produce it with compounding, the same idea as a compound annual growth rate. Months are divided by 12 before annualizing.
Worked example
With the starting numbers above, you invest $10,000 and it is worth $15,000 after 3 years. Net profit is $15,000 - $10,000 = +$5,000.00, so ROI is $5,000 / $10,000 = +50.00%. Annualized, 1.5 raised to the power 1/3 is 1.1447, so the investment grew about +14.47% a year.
A business example: you spend $2,000 on ads and the sales they bring in leave $3,400 of gross profit after product costs. Enter $2,000 as the amount invested and $3,400 as the final value to get a 70.00% ROI. Using revenue instead of profit would overstate the return.
Limits to keep in mind
- ROI ignores time. A 50% gain over one year and over ten years show the same ROI, so add a holding period when you compare.
- Annualizing a period shorter than a year assumes the same pace continues for a full year, so a quick 10% gain over one month shows as more than 200% a year.
- ROI does not include taxes or inflation unless you build them into the numbers.
- For money added over time, such as monthly deposits, use the investment return calculator with contributions. For a share trade with buy and sell commissions, the stock profit calculator is quicker, and the break-even calculator shows how many units a project must sell to earn back its cost.
Frequently asked questions
What is a good ROI?
There is no single number. Compare the annualized ROI with what the same money could earn elsewhere over the same period, such as a savings account, a Treasury bill or a broad index fund, and ask whether the extra return is worth the extra risk and effort.
What is the difference between ROI and annualized ROI?
ROI is the total gain over the whole holding period. Annualized ROI spreads that gain into an equal yearly rate with compounding, so a 50% ROI over 3 years is about 14.47% a year. Use annualized ROI to compare investments held for different lengths of time.
Should I use revenue or profit to calculate marketing ROI?
Use profit. Marketing ROI is the gross profit the campaign produced minus what it cost, divided by what it cost. Revenue divided by ad spend is ROAS (return on ad spend), which looks higher because it ignores the cost of the goods you sold.
Does ROI include dividends, rent or interest?
Only if you include them. Add any dividends, rent or interest you received to the final value to measure total return. If you use only the sale price, you are measuring the price gain alone.
Related reading: ROI Explained: How to Calculate Return on Investment