How to calculate ROI: the formula, worked examples and a free ROI calculator
The Coavon team · · 15 min read
To calculate ROI, subtract what an investment cost from what it returned, divide the result by the cost, and multiply by 100. The answer is your return on investment as a percentage. If you put in $10,000 and get back $15,000, your ROI is ($15,000 − $10,000) ÷ $10,000 × 100 = 50%.
That is the whole formula, and the calculator below does it for you. The hard part is deciding what counts as the cost and the return, and comparing investments that run for different lengths of time. This guide covers both: the ROI formula, step-by-step instructions, worked examples for investments, marketing campaigns, projects and rental property, annualized ROI, how to calculate ROI in Excel, what a good ROI is, and the mistakes that make ROI figures misleading.
Jump to the ROI calculator, the ROI formula, annualized ROI, ROI in Excel or marketing ROI.
ROI calculator
Enter what you put in and what you got back. Add how long you held the investment to see the annualized ROI as well. Switch to Marketing campaign to work out the ROI and ROAS of a campaign.
ROI calculator: enter the amount invested and the amount returned to see the return on investment as a percentage, the net gain or loss, the money multiple and, if you add how long you held it, the annualized ROI. A second mode works out marketing ROI, ROAS and break-even revenue from campaign revenue, cost of goods and campaign cost. The calculator runs in the browser.
What is ROI?
ROI (return on investment) measures how much you gained or lost on something, relative to what it cost. It is expressed as a percentage, so you can compare investments of very different sizes: a 20% ROI means you made back what you put in plus a fifth more, whether you invested $100 or $1 million.
ROI is used everywhere money or effort goes in and a result comes out: shares and property, new equipment, hiring, software, training, marketing campaigns and whole projects. Its strength is simplicity. Its weakness, as you will see below, is that the simple version ignores time and risk.
The ROI formula
There are two common ways to write the ROI formula. They give exactly the same answer.
| Version | Formula |
|---|---|
| Using net profit | ROI = Net profit ÷ Cost of investment × 100 |
| Using final value | ROI = (Final value − Cost of investment) ÷ Cost of investment × 100 |
Each part means:
- Cost of investment: everything you put in. Purchase price, fees, setup, running costs and, for projects, the cost of people’s time.
- Final value (or return): everything you got back. Sale proceeds or current value, plus any income it paid along the way, such as dividends, rent or extra profit.
- Net profit: final value minus cost. If it is negative, it is a net loss and the ROI is negative.
Some people also express ROI as a money multiple: final value ÷ cost. Getting back $15,000 on $10,000 is a 1.5× multiple, which is the same thing as a 50% ROI.
How to calculate ROI, step by step
- Decide what you are measuring and over what period. One campaign, one machine, one year of a software subscription. A clear boundary stops costs and returns from leaking in or out.
- Add up the total cost. Include the purchase price plus fees, setup, maintenance, training and any staff time spent on it. Leaving costs out is the most common way ROI is overstated.
- Add up the total return. Sale proceeds or current value, plus income received, extra profit generated or costs saved. Use profit, not revenue, where the investment produces sales.
- Work out the net profit. Total return minus total cost.
- Divide by the cost and multiply by 100. That is your ROI as a percentage.
- Adjust for time if needed. If you are comparing investments held for different lengths of time, convert to annualized ROI.
ROI calculation examples
Example 1: shares, with fees and dividends
You buy 100 shares at $50 ($5,000) and pay a $10 trading fee, so the total cost is $5,010. A year later you sell at $62 ($6,200), pay another $10 fee and keep $6,190. Along the way the shares paid $150 in dividends, so the total return is $6,340.
Net profit = $6,340 − $5,010 = $1,330. ROI = $1,330 ÷ $5,010 × 100 = 26.5%. Forget the fees and the dividends and you would get 24%, which shows why every cost and every payment counts.
Example 2: new equipment for a small business
A bakery buys a second oven for $12,000 plus $1,000 to install it: $13,000 in total. It lets the bakery sell more, adding $6,500 a year in profit for three years, after which the oven is sold for $2,000. Total return: $6,500 × 3 + $2,000 = $21,500.
Net profit = $21,500 − $13,000 = $8,500. ROI = $8,500 ÷ $13,000 × 100 = 65.4% over three years, or about 18.3% a year annualized.
Example 3: a marketing campaign
A campaign costs $5,000 (ads, design and staff time) and brings in $20,000 in sales. Those products cost $8,000 to make, so the profit the campaign generated is $20,000 − $8,000 − $5,000 = $7,000.
ROI = $7,000 ÷ $5,000 × 100 = 140%. If you had used revenue instead of profit, you would have reported ($20,000 − $5,000) ÷ $5,000 = 300%, more than double the real figure. More on this in how to calculate marketing ROI.
Example 4: automating a weekly task
A team spends 10 hours a week building a report by hand. Their time costs the business about $40 an hour. An automation tool costs $3,000 to set up and $1,200 a year, so $4,200 in the first year, and cuts the work to 2 hours a week, saving 8 hours: 8 × $40 × 52 weeks = $16,640 a year.
First-year ROI = ($16,640 − $4,200) ÷ $4,200 × 100 = 296%. The savings run at $320 a week, so the tool pays for itself in about 13 weeks. Our guide to workflow automation has more on finding work like this.
Example 5: a negative ROI
You invest $8,000 and later sell for $6,800. Net profit = $6,800 − $8,000 = −$1,200. ROI = −$1,200 ÷ $8,000 × 100 = −15%. A negative ROI simply means you got back less than you put in.
How to calculate annualized ROI
Simple ROI ignores time. A 50% return sounds better than a 25% return, but not if the 50% took three years and the 25% took one. Annualized ROI converts any return into an average yearly rate, so investments of different lengths can be compared fairly.
The formula is: Annualized ROI = (Final value ÷ Cost)^(1 ÷ Years) − 1, multiplied by 100 for a percentage.
| Investment | Simple ROI | Held for | Annualized ROI |
|---|---|---|---|
| A: $10,000 → $15,000 | 50% | 3 years | (1.5)^(1/3) − 1 = 14.5% a year |
| B: $10,000 → $12,500 | 25% | 1 year | (1.25)^(1/1) − 1 = 25% a year |
| C: $10,000 → $12,000 | 20% | 6 months (0.5 years) | (1.2)^(1/0.5) − 1 = 44% a year |
Investment A had the biggest total return, but B grew money faster each year. Annualized ROI assumes the return compounds, and C’s figure assumes you could repeat the same six-month result, so treat very short periods with care. For investments with several cash flows at different times, the internal rate of return (IRR) is the more precise tool.
How to calculate ROI in Excel and Google Sheets
Put the cost in column A, the final value in column B and the number of years in column C, starting in row 2. Then:
| To calculate | Formula | Then |
|---|---|---|
| Net profit | =B2-A2 | Format as currency |
| ROI | =(B2-A2)/A2 | Format as a percentage |
| Money multiple | =B2/A2 | Format as a number with 2 decimals |
| Annualized ROI | =(B2/A2)^(1/C2)-1 | Format as a percentage |
| Annualized ROI (built-in) | =RRI(C2,A2,B2) | Format as a percentage |
The same formulas work in Google Sheets. Format the ROI cell as a percentage rather than multiplying by 100, or Excel will show 5000% instead of 50%. To compare several investments, fill the formulas down and sort by the annualized column. If cost is ever zero, wrap the formula as =IF(A2=0,"",(B2-A2)/A2) to avoid a divide-by-zero error.
How to calculate marketing ROI
Marketing ROI uses the same idea, but the return should be the profit the campaign generated, not the revenue.
Marketing ROI = (Revenue from the campaign − Cost of goods sold − Campaign cost) ÷ Campaign cost × 100
- Revenue from the campaign: sales you can reasonably attribute to it. Use tracked links, discount codes or your analytics, and be honest about sales that would have happened anyway.
- Cost of goods sold: what those sales cost to make or deliver. Without it, a campaign selling at a loss can look like a success.
- Campaign cost: ad spend plus everything else it took: agency or freelancer fees, design, tools, and your team’s time.
ROI vs ROAS
ROAS (return on ad spend) is revenue divided by ad spend. A campaign with $20,000 of revenue from $5,000 of ads has a ROAS of 4×. ROAS is quick and useful for comparing ads, but it ignores product costs and non-ad costs. ROI tells you whether the campaign actually made money. A high ROAS can still mean a negative ROI if margins are thin.
| ROI | ROAS | |
|---|---|---|
| Measures | Profit relative to total cost | Revenue relative to ad spend |
| Formula | (Profit − Cost) ÷ Cost | Revenue ÷ Ad spend |
| Includes product costs | Yes | No |
| Best for | Deciding whether a campaign or channel is worth it | Comparing ads and optimizing spend day to day |
For longer-term channels such as SEO, content and email, returns build up over months, so measure over a longer window and include repeat purchases where you can. Our guides to content marketing and email marketing campaigns cover how to track those channels.
How to calculate ROI for a project
Project ROI compares what a project costs with the value it delivers, usually over a set number of years:
Project ROI = (Total benefits − Total project costs) ÷ Total project costs × 100
- Costs include people’s time (hours × loaded hourly cost), software, equipment, contractors, training, and ongoing running costs over the period you are measuring.
- Benefits include extra revenue, costs saved, time saved (valued at the same hourly cost), and avoided costs such as fines or lost customers. Put a cautious number on each.
- Choose the period up front. One year for quick wins, three to five years for larger systems. State it next to the ROI.
Alongside ROI, many teams report the payback period: how long until the savings cover the cost. In the automation example above, it was about 13 weeks. A short payback is persuasive when budgets are tight. Delivering the project on time matters too, since delays push back every benefit; see our guide to project scheduling.
How to calculate ROI on rental property
Property ROI depends on whether you pay cash or borrow. Here is an illustrative example with round numbers.
Bought with cash
Purchase price $200,000, closing costs $5,000 and repairs $15,000: $220,000 invested. Rent is $1,800 a month, or $21,600 a year. Taxes, insurance, maintenance, management and an allowance for empty months come to $7,600 a year, leaving $14,000 a year in net income.
Annual ROI = $14,000 ÷ $220,000 × 100 = 6.4%, before any rise or fall in the property’s value.
Bought with a mortgage (cash-on-cash return)
Same property, but with a $40,000 down payment, so the cash you put in is $40,000 + $5,000 + $15,000 = $60,000. Say the mortgage payments are $12,000 a year. Net cash flow = $21,600 − $7,600 − $12,000 = $2,000 a year.
Cash-on-cash return = $2,000 ÷ $60,000 × 100 = 3.3% a year. This figure leaves out the part of each mortgage payment that pays down the loan and any change in the property’s value, both of which add to the total return when you sell. Investors usually look at cash-on-cash return, cap rate and total return together.
What is a good ROI?
There is no single answer. A good ROI is one that beats your alternatives for the same level of risk and time. Ask three questions:
- What else could this money or time do? If a low-risk savings account pays a few percent, a risky project needs to promise much more.
- How risky is it? The more uncertain the return, the higher the ROI you should expect in exchange.
- How long does it take? Compare annualized figures, not simple ROI.
For reference, broad stock market indexes in the US have historically returned around 10% a year on average over long periods before inflation, which is why many people use that as a benchmark for long-term investments, while individual years vary widely. Businesses often set a hurdle rate, a minimum annualized return a project must clear before it is approved, based on their cost of borrowing and the risk involved. For internal projects such as new software or process changes, a payback within a year is commonly treated as a strong case.
ROI vs other ways to measure returns
| Measure | What it tells you | Use it when |
|---|---|---|
| ROI | Total gain or loss as a percentage of cost | A quick, simple comparison |
| Annualized ROI | The average yearly growth rate | Comparing investments of different lengths |
| ROAS | Revenue per dollar of ad spend | Comparing and tuning ads |
| Payback period | How long until you get your money back | Cash is tight, or speed matters |
| Net present value (NPV) | Today’s value of future cash flows minus the cost | Large investments with returns spread over years |
| Internal rate of return (IRR) | The annual rate at which NPV is zero | Several cash flows at different times |
| Cash-on-cash return | Yearly cash income relative to cash put in | Financed property |
| Return on equity (ROE) | Profit relative to shareholders’ equity | Judging a whole company |
Limitations of ROI
- It ignores time, unless you annualize it. A 40% ROI over ten years is weak.
- It ignores risk. Two investments with the same ROI can have very different chances of losing money.
- It depends on what you count. Leave out staff time or running costs and any project looks good. Two people can calculate different ROIs for the same thing.
- Some benefits are hard to measure, such as better morale, fewer mistakes or a stronger brand. Leaving them out understates ROI; guessing them generously overstates it.
- Attribution is often uncertain, especially in marketing, where several channels influence one sale.
None of this makes ROI less useful. It means you should state your assumptions next to the number: the period, what costs are included, and how the return was measured.
Common ROI calculation mistakes
- Using revenue instead of profit as the return.
- Forgetting hidden costs: fees, setup, maintenance, training, and the hours people spend.
- Comparing different time periods without annualizing.
- Counting the same benefit twice, for example both the time saved and the extra work done in that time.
- Picking a flattering period, such as measuring just after a seasonal peak.
- Forgetting the percentage step: in a spreadsheet, either format as a percentage or multiply by 100, not both.
- Ignoring what would have happened anyway. Sales during a campaign are not all caused by the campaign.
How to improve ROI
There are only three levers: increase the return, reduce the cost, or get the return sooner. In practice that means starting small and scaling what works, cutting work that does not move results, automating repetitive tasks, negotiating or consolidating tools and suppliers, and tracking results regularly so you can stop poor investments early. Agree how you will measure ROI before you start, so the number at the end is trusted.
Working out the ROI of your software
Software is a common place to look for better ROI, because separate tools for tasks, clients, documents, files and chat each charge per person. The return of switching is the money and time saved; the cost is the new subscription plus the time to move over. The savings calculator on our pricing page shows what you pay for separate tools today next to the cost of Coavon, which includes Flow, Scope, Docs, Drive, Chat, Notes and Calendar on one account. Add the hours your team spends switching between tools and copying information from one to another, and you have both sides of the ROI calculation.
Frequently asked questions
How do you calculate ROI?
Subtract the cost of the investment from what it returned, divide by the cost, and multiply by 100. For example, investing $10,000 and getting back $15,000 gives ($15,000 − $10,000) ÷ $10,000 × 100 = 50% ROI.
What is the ROI formula?
ROI = (Final value − Cost of investment) ÷ Cost of investment × 100. It can also be written as Net profit ÷ Cost of investment × 100. Both give the same answer, as a percentage.
How do you calculate ROI as a percentage?
Divide the net profit by the cost and multiply by 100. A net profit of $2,500 on a $10,000 investment is 0.25, or 25%. In a spreadsheet, format the cell as a percentage instead of multiplying by 100.
What is a good ROI?
A good ROI beats the alternatives available for the same risk and time. Compare annualized figures: broad US stock market indexes have historically averaged around 10% a year over long periods before inflation, so many people use that as a benchmark for long-term investments. Riskier investments should promise more.
How do you calculate annualized ROI?
Divide the final value by the cost, raise the result to the power of 1 divided by the number of years, subtract 1 and multiply by 100. A 50% return over three years is (1.5)^(1/3) − 1 = about 14.5% a year.
How do you calculate ROI in Excel?
With the cost in A2 and the final value in B2, use =(B2-A2)/A2 and format the cell as a percentage. For annualized ROI with the years in C2, use =(B2/A2)^(1/C2)-1 or the built-in =RRI(C2,A2,B2).
What is the difference between ROI and ROAS?
ROAS is revenue divided by ad spend and ignores product and other costs. ROI is profit after all costs divided by the total cost, so it shows whether the campaign actually made money. A campaign can have a healthy ROAS and still lose money.
Can ROI be negative?
Yes. A negative ROI means the investment returned less than it cost. Investing $8,000 and getting back $6,800 is a −15% ROI.
How do you calculate the ROI of a project?
Add up all the project’s costs, including people’s time, over a set period, and all its benefits over the same period, such as extra revenue, costs saved and time saved. ROI = (Total benefits − Total costs) ÷ Total costs × 100. Report the payback period alongside it.
What should be included in the cost of an investment?
Everything it took: the purchase price, fees, setup and installation, training, maintenance and running costs, and the value of the time people spent on it. Leaving costs out is the most common way ROI is overstated.