Return on Investment (ROI) Formula
Calculate ROI with the formula (Net Profit / Cost) × 100.
Measure the profitability and efficiency of any investment.
The Formula
ROI = (Net Profit / Cost of Investment) × 100
Return on Investment measures the gain or loss from an investment relative to its cost. It is expressed as a percentage, making it easy to compare different investments.
Variables
| Symbol | Meaning |
|---|---|
| ROI | Return on Investment (as a percentage) |
| Net Profit | Total earnings minus total cost (Revenue - Cost) |
| Cost of Investment | The total amount spent on the investment |
Example 1
You buy stocks for $10,000 and sell them for $13,500.
Net Profit = $13,500 - $10,000 = $3,500
ROI = (3500 / 10000) × 100
ROI = 0.35 × 100
ROI = 35% — You earned a 35% return on your investment.
Example 2
A business spends $50,000 on a marketing campaign that generates $72,000 in revenue.
Net Profit = $72,000 - $50,000 = $22,000
ROI = (22000 / 50000) × 100
ROI = 0.44 × 100
ROI = 44% — The campaign returned 44 cents for every dollar spent.
When to Use It
Use the ROI formula when:
- Comparing the profitability of different investments
- Evaluating whether a business project was worth the cost
- Deciding where to allocate your money for the best returns
- Measuring the effectiveness of marketing campaigns or capital expenditures