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ROI (Return on Investment) is the most universal measure of investment efficiency. It expresses profit as a percentage of the capital deployed to generate it.
The formula
ROI = (Net Profit / Investment Cost) × 100
Where Net Profit = Revenue − Operating Costs
At $150k revenue, $50k costs, and $100k investment: - Net Profit = $100k - ROI = ($100k / $100k) × 100 = 100%
Annualized ROI
Annualized ROI = ((1 + ROI/100) ^ (1/years) − 1) × 100
Annualized ROI enables comparison across different time horizons. A 50% ROI over 2 years is equivalent to ~22.5% annualized — not 25%. Compounding matters.
What counts as a good ROI?
Context is everything: - Marketing: 5:1 return ($5 revenue per $1 spent) = 400% ROI — consider good - Real estate: 8–12% annualized ROI — typical - S&P 500 average: ~10% annualized — the benchmark for passive capital - SaaS investment: target > 30% annualized within 3 years
Any ROI below your cost of capital (typically 8–15%) means the investment destroys value.
ROI vs other metrics
| Metric | Measures | When to use |
|---|---|---|
| ROI | Total return on capital | Comparing investment efficiency |
| ROAS | Revenue per ad dollar | Marketing-specific |
| Payback period | Months to recoup investment | Cash flow planning |
| NPV | Present value of future returns | Long-term capital allocation |
Frequently asked questions
What does this calculator do? Calculate ROI, annualized ROI, net profit, and break-even period from revenue, costs, and initial investment.