ROI Calculator: Measuring Return on Investment
Return on investment expresses gain as a percentage of what you put in: (gain − cost) ÷ cost × 100. It is the common language for comparing a marketing campaign, a piece of equipment and a share purchase on the same scale.
Include every cost
ROI is only as honest as the cost figure. For a marketing campaign that means ad spend plus creative, agency fees, tooling and the staff time spent running it. For equipment it means purchase price, installation, training, maintenance and financing. Understating cost is the most common way an unprofitable project shows a positive return on paper.
Annualise before you compare
A 50% return over five years is not better than a 15% return in one year. Convert to an annualised figure before comparing: ((1 + ROI)^(1/years)) − 1. For projects with cash flows spread over time, internal rate of return or net present value gives a fairer answer because it accounts for when the money arrives.
Benchmarks worth knowing
- Marketing: a 5:1 revenue-to-spend ratio (400% ROI) is a common healthy target.
- Equity markets: roughly 7-10% a year long term before inflation.
- Efficiency projects: judged on payback period as often as on ROI.
- Any ROI should be compared against the return you would get doing nothing else with the money.
Key takeaways — ROI Calculator
- ROI = (net gain ÷ total cost) × 100.
- Count all direct and indirect costs, including internal time.
- Annualise returns before comparing projects of different lengths.