ROI Calculator
Calculate return on investment from what you put in and what you got back, plus the annualised return that makes different holding periods comparable.
How to use this calculator
- 1Enter everything the investment cost you, not just the headline price — fees, setup, and your own time if you want it counted.
- 2Enter everything it returned, including income received during the period, not just the final sale value.
- 3Add the holding period to get the annualised figure, which is the number worth comparing.
How the calculation works
ROI = (Returned − Invested) / Invested × 100 Annualised = (Returned / Invested)^(1/t) − 1- Invested
- Total cost of the investment, including fees
- Returned
- Total value received back
- t
- Holding period in years
ROI is a ratio, so it is unitless and works for anything measurable in money — a marketing campaign, a machine, a property.
The annualised form is the same maths as CAGR. Without it, two investments cannot be fairly compared unless they ran for the same length of time.
Worked example
$10,000 invested, $14,500 returned after 2 years
- 1.Net gain = 14,500 − 10,000 = $4,500.
- 2.ROI = 4,500 ÷ 10,000 = 45%.
- 3.Annualised = (14,500 ÷ 10,000)^(1/2) − 1 = 1.2042 − 1 = 20.42% a year.
Result: 45% total, 20.42% a year
What ROI actually measures
Return on investment strips a decision down to its simplest possible form: for every dollar put in, how many dollars came back out. That simplicity is exactly why it is used so widely — the same formula works whether the "investment" is a share portfolio, a piece of factory equipment, a marketing campaign or a college degree, because it only asks about money in and money out, not what kind of investment it was.
Reading an ROI figure correctly
A 45% ROI means the investment returned 1.45 times what was put into it — the original amount, plus 45% more on top. It is easy to misread the percentage as the total money back rather than the profit alone, which understates how much was actually recovered; expressing the same result as a return multiple (1.45×) alongside the percentage avoids that confusion.
Where ROI shows up in practice
The same formula gets applied to a wide range of decisions well beyond personal investing.
- Marketing — comparing what a campaign cost to run against the extra profit it generated, to judge whether the spend was worth it.
- Capital projects — businesses use it to compare competing uses for the same pool of money — a new machine versus renovating an existing line.
- Real estate — weighing purchase price, renovation and holding costs against rental income and eventual sale price.
- Personal finance — comparing the growth of a retirement account, a side business, or a home purchase against what the same money could have earned elsewhere.
Why the holding period changes everything
A 45% return sounds identical whether it took two years or twenty, but the two outcomes are nowhere near equivalent — money that compounds quickly is worth far more than the same total gain spread thin over decades. Annualising the return converts any result into the equivalent steady rate per year, which is the only version of ROI that can be fairly compared across investments of different lengths. A 45% return over two years is a strong ~20% a year; the same 45% stretched over ten years works out to under 4% a year — closer to what a savings account might pay.
What ROI leaves out
ROI treats a certain, low-risk return and a speculative, high-risk return identically as long as the final number matches, which is its biggest blind spot — it says nothing about how likely that return actually was, or how much the value swung along the way before landing there. It also assumes a single lump sum in and a single lump sum out; investments with several cash flows at different times are better judged with a related but more complete measure like internal rate of return (IRR) or net present value (NPV), which account for when money moves, not just how much.
What this assumes, and where it stops
Assumptions
- All costs are captured in "amount invested". Omitting fees, time or opportunity cost inflates the result.
- The return is measured at a single point. Money received earlier is worth more, which simple ROI does not reflect.
Limitations
- ROI says nothing about risk, volatility or the probability of the outcome.
- For investments with multiple cash flows in and out at different times, IRR or NPV is the correct measure — simple ROI will mislead.
- Tax is excluded. After-tax returns can differ substantially between investment types.
Common questions
What is a good ROI?
Only meaningful relative to alternatives and risk. The right comparison is against what you could have earned elsewhere for similar risk — a broad market index, or your cost of capital. A 6% annualised return is excellent for something safe and poor for something speculative.
How do I calculate marketing ROI?
Invested is total campaign spend including production and staff time; returned is the incremental gross profit attributable to the campaign, not the revenue. Using revenue instead of profit is the most common way marketing ROI gets overstated.
Why does the holding period matter so much?
Because returns compound. A 45% total return looks strong until you learn it took ten years — that is 3.8% a year, below most savings accounts. The annualised figure is the only one that lets you compare like with like.
Sources
- Evaluating investment performance — US Securities and Exchange Commission
Formula and content last reviewed on .
Results are estimates for information only, not professional advice.
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