ROI Calculator

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

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 says the same thing as a multiple instead of a percentage.

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

Losses work the same way. 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 give an identical output from this tool. One is an excellent result and the other trails a savings account, and ROI can't tell them apart.

There's 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. It works on any pair of amounts, not just revenue.

In practice, ROI is only comparable between investments held for similar lengths of time. Across different horizons it's misleading, and the error always favours the slow investment.

Garbage in the return figure

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

Leaving out income received along the way. Rental income, dividends, coupon payments and distributions are part of the return. If you enter only a sale price, you'll understate a property or a dividend portfolio substantially.

Leaving out 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. Whichever you choose, be consistent, and do it the same way for every option you're comparing.

Tax isn't 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's the right tool

ROI works well when the time period is fixed and identical across the options you're 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, such as a machine or 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. If you want to check whether a product is profitable before you scale it, use the profit margin calculator. And to find the sales volume that makes a fixed investment pay for itself, try the break-even calculator.