How to calculate return on investment (ROI)
ROI measures how much you gained relative to what you spent. It is the simplest way to compare marketing campaigns, equipment purchases or projects, but it ignores time, so for multi-year investments also look at annualized ROI.
Formula
ROI = (Gain from investment - Cost of investment) / Cost of investment x 100% Annualized ROI = (1 + ROI)^(1 / Years) - 1
Example
You spend $5,000 on a campaign that brings $8,000 in gross profit. ROI = ($8,000 - $5,000) / $5,000 = 60%. If that took 2 years, annualized ROI is about 26.5%.
Frequently asked questions
What is a good ROI?
It depends on risk and time. Many businesses target marketing ROI above 100% (earning $2 for every $1 spent), while long-term investments are often compared to a 7-10% annual market return.
What is the difference between ROI and ROAS?
ROAS divides revenue by ad spend; ROI subtracts all costs and divides profit by investment. A campaign can have a high ROAS and still a negative ROI if margins are thin.
Should I use revenue or profit in the ROI formula?
Use profit (gain minus all related costs). Using revenue overstates ROI.