What Is ROI and How to Calculate It (With Formula & Examples)

What Is ROI (Return on Investment)?

ROI tells you how profitable an investment was compared to what it cost you. It's a percentage that answers one simple question: for every dollar you put in, how much came back?

The best part? You can compare totally different investments on equal footing. A stock, a marketing campaign, a rental property — ROI lets you rank them all with the same number.

Since ROI is a percentage, not a dollar amount, it levels the playing field. A $500 investment that turns into $750? That's 50% ROI. A $500,000 investment that turns into $750,000? Also 50% ROI. Same return rate, different scale. That's why ROI is the universal language of investing.

The ROI Formula

The formula only needs two numbers: what you put in, and what you got back. That's it.

Here's how it breaks down:

1. Subtract the amount invested from the amount returned to find the net profit (or net loss).
2. Divide that result by the amount originally invested.
3. Multiply by 100 to convert the decimal to a percentage.

Positive ROI means you made money. Negative means you lost some. Zero means you broke even — you got back exactly what you put in.

ROI Calculation Examples

Example 1: Stock Investment

Say you buy $8,000 worth of stock. Two years later, you sell everything for $11,200.

Here's the math: ($11,200 − $8,000) ÷ $8,000 × 100 = 40%. Your $8,000 grew to $11,200 — a 40% return, or 1.40x your original investment.

Example 2: Marketing Campaign

Your business spends $2,500 on paid ads. Those ads bring in $6,750 in trackable revenue from new customers.

Here's the math: ($6,750 − $2,500) ÷ $2,500 × 100 = 170%. Every dollar you spent on ads brought back $2.70. That's a win any way you look at it.

Example 3: Negative ROI (Loss)

Not every investment works out. Say you put $15,000 into a startup. The company winds down and you get $9,000 back.

The math: ($9,000 − $15,000) ÷ $15,000 × 100 = −40%. You lost 40% of your capital — $6,000 gone.

What Is a Good ROI?

There's no one-size-fits-all answer. It depends on what you're investing in, how long you're in it, and how much risk you're taking. Higher risk should mean higher potential ROI — otherwise, why take the gamble?

ROI Limitations: What ROI Does Not Tell You

ROI is powerful because it's dead simple. But that simplicity comes with blind spots. Here's what ROI doesn't tell you:

• Time: A 50% ROI over 1 year is dramatically better than a 50% ROI over 10 years. ROI ignores how long your capital was at risk. For time-adjusted returns, use CAGR (Compound Annual Growth Rate) or IRR (Internal Rate of Return).
• Risk: Two investments with the same 30% ROI are not equivalent if one is a government bond and the other is a volatile penny stock. ROI does not factor in volatility or the probability of loss.
• Inflation: A 5% ROI in a year with 4% inflation is only a 1% real gain in purchasing power. For inflation-adjusted analysis, subtract the inflation rate from your nominal ROI to get your "Real ROI."

ROI vs. Related Metrics

How to Calculate ROI with Our Free Calculator

Don't feel like doing the math by hand? Use our free ROI calculator instead. Here's how:

1. Enter the total amount of money you originally invested in the "Amount Invested" field.
2. Enter the total amount you received back in the "Amount Returned" field. This is your final value, including your original principal.
3. The calculator instantly shows your ROI percentage, net profit or loss in dollars, and your investment multiplier.