What is ROI and how to calculate it
Updated on June 30, 2026 · by Rafael Rossi
ROI (Return On Investment) is the most direct answer to "was this investment worth it?". It measures profit relative to what you put in.
The formula
ROI = (gain − cost) ÷ cost × 100
Step-by-step example
You invest $1,000 and get $1,300 back:
- Profit: 1,300 − 1,000 = $300
- ROI: 300 ÷ 1,000 × 100 = 30%
Each $1 invested returned $0.30 of profit, on top of the capital. A negative ROI means a loss.
The big limitation: time
ROI ignores the term. 30% in 1 year is excellent; 30% over 5 years is poor. To compare investments over different periods, use CAGR (annualized return).
Watch out when calculating
Include all costs in the amount invested — fees, taxes, shipping — or the ROI is inflated. In marketing, "gain" is usually the campaign's revenue and "cost" is its spend.
FAQ
ROI vs profit margin? Margin relates profit to revenue (selling price); ROI relates profit to the amount invested.
What's a good ROI? It depends on risk and term. It's only "good" if it beats a safe investment over the same period.