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ROI Calculator

Measure whether an investment actually paid off. Enter what you put in and what it is worth now, and optionally the holding period to get the annualised return.

Use it for equipment purchases, ad campaigns, a shop fit-out or any business spend you can attach a return to.

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$
yrs

Optional, needed only for the annualised return.

Return on investment

Amount investedNet gain
Amount invested
$500,000.00
Net gain
$225,000.00
ROI
45%
Annualised return (CAGR)
13.19%
ROI = (final value − investment) ÷ investment × 100.

You earned $45 for every $100 invested, before considering factors outside this calculator's assumptions.

Smart next steps

Formula

ROI% = (Final value − Investment) ÷ Investment × 100

CAGR% = ((Final value ÷ Investment)^(1 ÷ Years) − 1) × 100

ROI ignores time. Always check the annualised figure before comparing two investments of different lengths.

Worked example

$50,000 invested and worth $72,500 after 3 years is a 45% ROI and about 13.2% a year annualised. The percentages are the same in any currency.

How to use this calculator

  1. 1Enter the amount you invested and the value it grew to.
  2. 2Enter the holding period in years.
  3. 3Read the total return percentage and the annualised return (CAGR).

When businesses use it

  • Comparing money put into new equipment against money left in a savings deposit.
  • Judging whether an ad campaign returned more than it cost.
  • Reviewing a business investment after three or five years.

Judging whether an investment earned its keep

Return on investment expresses the gain as a percentage of what you put in, which makes very different spends comparable: a delivery vehicle, a shop renovation and an advertising campaign can all be judged on the same scale. The discipline is in defining the two inputs honestly: the investment should include installation, training and downtime, and the final value should be the incremental benefit the spend produced, not total revenue.

ROI ignores time, and that is its biggest weakness. A 45% return earned in one year is excellent; the same 45% over five years is barely better than leaving the money in a savings deposit. Annualising the figure to a compound yearly rate is what makes two investments of different lengths genuinely comparable, which is why the annualised return sits next to the headline number here.

Compare the result against your cost of capital rather than against zero. If working capital costs you 11% a year, any investment returning less than 11% annualised is destroying value even though it shows a positive ROI, and the money would do more sitting against the overdraft.

Getting the inputs right

  • Include setup, training and lost production time in the investment figure.
  • Use incremental gross profit generated, not gross revenue, as the return.
  • Judge marketing spend over the full customer lifetime, not the first order.
  • Benchmark against your loan rate or overdraft rate, not against nothing.

ROI vs profit

Profit is an amount; ROI tells you how hard the money worked to earn it. A $5,000 profit on $10,000 invested is a 50% ROI. The same $5,000 profit on $100,000 invested is 5%, and that could be worse than simply paying down a loan. Look at both: profit tells you whether it was worth doing at all, ROI tells you whether it was the best use of the money.

Two worked examples

An ad campaign. You spend $2,000 on ads and the orders they bring in produce $3,000 of gross profit within two months. ROI = ($3,000 − $2,000) ÷ $2,000 = 50%. Use gross profit, not the sales total, as the final value.

A piece of equipment. A $20,000 machine produces $26,000 of extra profit over four years. ROI = 30%, which sounds better than it is: annualised, that's about 6.8% a year. If your loan costs more than that, the machine is not paying for itself.

How to read the result

  • A negative ROI means you got back less than you put in.
  • Compare investments of different lengths on the annualised return, not the headline ROI.
  • Compare the annualised return with your cost of borrowing, or with what the money would earn elsewhere, rather than with zero.
  • Count the full cost in the investment: setup, training, fees and time lost while switching over.

For the common mistakes in ROI calculations, see how to calculate ROI. If the investment was financed, check the interest cost with the loan payment (EMI) calculator, and see how long it takes to cover its costs with the break-even calculator.

Learn the maths behind it

  • How to calculate EMI

    EMI = P × r × (1+r)^n ÷ ((1+r)^n − 1), where r is the monthly rate and n the number of months.

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Frequently Asked Questions

There's no universal number. Compare the annualised return with what the money costs you: if borrowing costs 8% a year, an investment returning less than 8% annualised is losing value even though its ROI is positive.

Use the value the investment actually produced for you. For a campaign or a piece of equipment, that's the extra gross profit it generated, not the revenue, because revenue still has costs to come out of it.

Because ROI covers the entire holding period. Spread over several years, the yearly compounded rate is smaller.

ROI is the total return over the whole period. CAGR converts it into the equivalent compounded annual rate, so investments of different lengths can be compared.

Yes. If the final value is below the amount invested, the return is negative and the shortfall is your loss on the spend.

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