Business ROI Calculator

Return on Investment (ROI) is the most fundamental metric in business and investing. It measures how much profit you earn relative to the cost of an investment, expressed as a percentage. A positive ROI means the investment earned money; a negative ROI means it lost money.

Standard ROI formula: ROI = (Net Profit / Cost of Investment) × 100

Annualized ROI formula (for multi-year investments): Annualized ROI = [(1 + ROI/100)^(1/years) − 1] × 100

What each variable means:

• Net Profit = Total Return − Cost of Investment (can be negative)
• Cost of Investment — total amount spent, including purchase price, fees, maintenance, and any other costs
• Total Return — total value received, including final sale price, dividends, or revenue
• Years — holding period; used to calculate the annualized (per-year) return

Worked example 1 — Simple investment: Buy stocks for $5,000. Sell them later for $6,800. Net Profit = $6,800 − $5,000 = $1,800 ROI = ($1,800 / $5,000) × 100 = 36%

Worked example 2 — Annualized over 4 years: Same $1,800 gain but held for 4 years: Annualized ROI = [(1.36)^(1/4) − 1] × 100 = [1.0796 − 1] × 100 = 7.96% per year

Worked example 3 — Marketing campaign: Spend $10,000 on ads. Revenue from those ads: $34,000. Cost of goods sold: $18,000. Net Profit = $34,000 − $18,000 − $10,000 = $6,000 ROI = ($6,000 / $10,000) × 100 = 60%

Benchmark ROI values:

• S&P 500 historical average: ~10% per year (nominal), ~7% inflation-adjusted
• Real estate: ~8–12% total annual return (rent + appreciation)
• High-yield savings account: ~4–5% (2024–2025)
• Marketing campaigns: industry average 5:1 ratio ($5 revenue per $1 spent = 400% ROI)

Limitation: ROI ignores the time value of money unless annualized. For comparing investments over different time periods, always use annualized ROI or Net Present Value (NPV).