How to Calculate ROI: Formula, Examples, and What Counts as Good

What Is ROI?

Return on investment (ROI) measures how much gain or loss you received relative to the amount you invested. It is a simple, universal metric used across investing, business, real estate, and marketing to evaluate the efficiency of a spend.

ROI does not tell you everything — it does not account for time, risk, or opportunity cost — but it gives a fast, comparable way to assess whether a particular use of money generated a return.

The ROI Formula

ROI = (Net Profit ÷ Cost of Investment) × 100

Net profit is the gain minus the original cost: what you ended up with minus what you put in. Cost of investment is the total amount you invested or spent.

Example: you invest $1,000 in a stock and later sell for $1,250. Net profit = $250. ROI = (250 ÷ 1,000) × 100 = 25%.

Three Worked Examples

Example 1 — Stock investment: You invest $5,000. After two years, the investment is worth $6,400. Net profit = $1,400. ROI = (1,400 ÷ 5,000) × 100 = 28% over two years.

Example 2 — Home improvement: You spend $8,000 on a kitchen renovation. The appraised value of your home increases by $11,000. Net gain = $3,000. ROI = (3,000 ÷ 8,000) × 100 = 37.5%.

Example 3 — Business marketing spend: A company spends $2,000 on advertising. The campaign generates $5,500 in attributable revenue. Net profit (assuming 60% margin) = $3,300 − $2,000 = $1,300. ROI = (1,300 ÷ 2,000) × 100 = 65%.

What Is a Good ROI?

There is no universal answer — a good ROI depends entirely on the context, the risk involved, and what alternatives are available.

• Stock market: The historical average annual return of broad US stock market indices has been approximately 7–10% after adjusting for inflation, though past performance does not guarantee future results and investments can lose value.
• Savings accounts and bonds: Lower risk means lower expected return — typically 2–5% in a normal rate environment.
• Real estate: Returns vary enormously by location, leverage, and market conditions.
• Business investments: Many businesses target ROI of 15–25% or more to justify capital expenditure over a defined time horizon.

Limitations of ROI

ROI is a useful starting point but has real limitations:

• Ignores time: A 50% ROI over 10 years is very different from 50% in one year. Annualised ROI (or CAGR) accounts for this.
• Ignores risk: Two investments with the same ROI can carry very different levels of risk.
• Ignores opportunity cost: An ROI of 10% looks good until you compare it with an alternative that would have returned 18%.
• Doesn't account for taxes or fees: The gross ROI on paper may be meaningfully different from net return after transaction costs and tax.

Calculate Your ROI

Use our free ROI Calculator to enter your investment cost and return, and see your ROI percentage instantly. For annualised return calculations, the calculator also supports a time period input.

This content is for informational purposes only and does not constitute financial advice. For guidance on specific investments, consult a qualified financial advisor.