ROI calculator (return on investment)

ROI expresses as a percentage how much you gained relative to what you put in. It is the most common metric for comparing very different opportunities.

A 50% ROI means you got your money back plus half of it again.

The investment is subtracted from the money returned to get the profit, which is then divided by the investment and multiplied by a hundred.

Note that ROI ignores time, so 50% in one year and 50% in ten years produce the same figure.

An ROI without a timeframe says nothing

A fifty per cent return is excellent over one year and mediocre over ten. Classic ROI ignores time, which is why comparing two investments on that figure alone leads to wrong decisions. To compare, annualise the result or use an internal rate of return directly.

What belongs in the cost

The commonest mistake is counting only visible outlay. A marketing campaign costs what was paid to the media, but also the team's hours, the tools and the production cost of the materials. An ROI calculated on an incomplete cost always looks favourable, and is no use for deciding anything.

Revenue or profit

Calculating return on revenue generated inflates the result compared with calculating it on margin. If you sell a hundred thousand at a thirty per cent margin, what actually came in is thirty thousand. Reports that mix the two criteria across periods are not comparable.

Opportunity cost

A positive ROI does not mean the investment was good: it means it made money. If the same capital placed elsewhere would have returned more with less risk, the decision was still a bad one.