What is ROI?
ROI is an abbreviation of return on investment. By definition, ROI is a ratio between the net gain and the net cost of an investment — it compares the income from an investment to the expenses required to finance it. Customarily, ROI is presented as a percentage: a result of 0.1 is reported as ROI = 10%.
Alongside NPV, IRR, and payback period, ROI is one of the most frequently used methods of evaluating the economic consequences of an investment. Its main advantage is simplicity — ROI can be easily calculated from widely available data, its value is clear to understand, and because it is expressed as a percentage it is easy to compare the results of many different investments.
ROI Formula
The ROI formula is based on two pieces of information — the gain from investment and the cost of investment:
ROI = ( G – C ) / C × 100%Where:
- G — gain from investment (returned amount)
- C — cost of investment (invested amount)
Note that the ROI equation does not take into consideration any risks associated with the investment.
Examples of ROI Calculation
Example 1 — Real Estate
You purchase a property for $600,000. Three years later you sell it for $900,000.
ROI = ($900,000 – $600,000) / $600,000 × 100% = 50%Example 2 — Marketing Campaign
You launch a marketing program with a budget of $250,000. It produces $200,000 in profit growth over each of two years (total gain: $400,000).
ROI = ($400,000 – $250,000) / $250,000 × 100% = 60%Example 3 — Stocks
In January you buy 150 shares at $12.67 each (total: $1,900.50). Nine months later the price is $15.23 and you sell (total: $2,284.50).
ROI = ($2,284.50 – $1,900.50) / $1,900.50 × 100% ≈ 20.21%If instead the price had fallen to $9.14 (total: $1,371), ROI would be −27.86% — a loss.
How to Use the ROI Calculator
Our return on investment calculator supports two modes:
- Standard mode — enter the invested amount and the returned amount to get the ROI percentage and net profit/loss.
- Reverse mode — enter the invested amount and a target ROI percentage to find the required returned amount.
The calculator supports 20 world currencies: USD, EUR, GBP, CAD, AUD, JPY, CNY, INR, CHF, MXN, BRL, SGD, KRW, SEK, NOK, DKK, PLN, HKD, RUB, and TRY.
ROI and Financial Decisions
ROI is a universal metric. You can use it to evaluate real estate investments, marketing campaigns, stock purchases, business projects, or any other use of capital. When comparing multiple opportunities, the one with the highest ROI delivers the greatest return per dollar invested — all else being equal.
ROE vs. ROI
Return on Equity (ROE) measures how efficiently a company uses shareholders' equity to generate profit, while ROI is broader and can be applied to any type of investment or asset. ROE is primarily used in corporate finance to benchmark companies; ROI is used by individual investors and businesses alike.
Advantages and Disadvantages of ROI
Advantages
- Simple to calculate and easy to interpret
- Based on readily available data
- Expressed as a percentage — allows comparison of diverse investments
- Universally recognized in business and finance
Disadvantages
- Does not account for the time value of money
- Ignores investment risk and volatility
- Does not consider the investment time horizon (a 50% ROI over 10 years is very different from 50% over 1 year)
- Can be manipulated by adjusting cost or gain definitions
Tips for Better ROI
- Diversify your portfolio to balance risk and return
- Consider time-adjusted metrics (IRR, NPV) for long-term projects
- Account for all costs — including taxes, fees, and maintenance
- Compare ROI across similar investment categories for a fair assessment
- Reinvest profits to benefit from compound growth
FAQs
What is a good ROI?
It depends on the asset class. Historically, annual stock market returns average around 7–10%. Real estate often returns 8–12% annually. A "good" ROI is one that exceeds your cost of capital and beats comparable alternatives.
Can ROI be negative?
Yes. A negative ROI means the returned amount is less than the invested amount — the investment resulted in a net loss.
Does ROI account for time?
Simple ROI does not account for time. For time-adjusted analysis, use the Annualized ROI formula or metrics like IRR and NPV.
What is the difference between ROI and profit?
Profit is an absolute monetary value (e.g., $5,000). ROI is a relative percentage that shows how much profit was earned per dollar invested (e.g., 50%). ROI allows you to compare investments of different sizes.