ROI Calculator

Return on investment answers one question: how much did this turn into, relative to what it cost? It answers nothing about how long that took, and that omission is the whole story of this page.

The calculation

Put in 5,000, get back 6,500. The gain is 1,500 and the ROI is 30%. The benefit-cost ratio is 1.30x, which is the same statement expressed as a multiple rather than a percentage.

ROI = (amount returned − amount invested) ÷ amount invested × 100

Losses work identically. Put in 12,000, get back 9,000, and the result is −25% with a benefit-cost ratio of 0.75x.

There is no time dimension here

A 30% return earned in eleven months and a 30% return earned over nine years produce an identical output from this tool. One is an excellent result and the other trails a savings account, and ROI cannot tell them apart.

This figure has no time dimension. There is no holding-period input, so a 50% return over six months and the same return over six years both read as 50%. If you need an annualised number, the revenue growth calculator computes CAGR from a start value, an end value and a number of years, and it works on any pair of amounts, not only revenue.

The practical rule: ROI is only comparable between investments held for similar lengths of time. Across different horizons it is misleading, and the direction of the error always favours the slow investment.

Garbage in the return figure

The output is exactly as good as the number you type into "amount returned". Two habits cause most of the trouble.

Omitting income received along the way. Rental income, dividends, coupon payments and distributions are part of the return. Enter only a sale price and you will understate a property or a dividend portfolio substantially.

Omitting costs of ownership. Transaction fees, brokerage, stamp duty, maintenance, storage, insurance and management charges are all real. Either add them to the amount invested or subtract them from the amount returned — but do it consistently, and do it the same way for every option you are comparing.

Tax is not modelled at all. Two investments with the same pre-tax ROI can differ sharply after tax depending on how the gain is characterised.

Where it is genuinely the right tool

ROI earns its place where the time period is fixed and identical across the options you are weighing:

• Comparing this quarter's marketing channels against each other, where all of them ran for the same quarter.
• Assessing a completed project after the fact against its approved budget.
• Sizing a one-off purchase — a machine, a piece of software — against the measurable saving it produced in its first year.

In each of those, holding time is constant, so ignoring it costs you nothing.

Pair this with

To turn a total return into an annual rate, use the revenue growth calculator. To check whether a product is profitable before you scale it, use the profit margin calculator. To find the sales volume that makes a fixed investment pay for itself, use the break-even calculator.