Return on investment measures how much you gained relative to what you put in. It works for anything with a cost and a payoff: shares, a property, a marketing campaign, a new machine. The catch is time: 45% over three years is very different from 45% in one year, which is why this calculator also shows annualized ROI.
How it works
ROI = (amount returned − amount invested) ÷ amount invested × 100. Investing $10,000 and getting back $14,500 is a $4,500 gain and a 45% ROI.
Annualized ROI = (returned ÷ invested)^(1 ÷ years) − 1. It's the yearly rate that would produce the same result with compounding, the same idea as CAGR. Over three years, 45% total is 13.19% a year.
Include every cost in the amount invested: fees, commissions, taxes paid, maintenance. Leaving them out is the most common way ROI gets overstated.
ROI doesn't account for risk. A safe 8% and a risky 8% show the same ROI, so compare it alongside how likely the return was and how easily you could lose money.
A worked example
You invested $10,000 and three years later it's worth $14,500. The net gain is $4,500, so ROI is 45% and the money multiple is 1.45×. Annualized over three years, that's 13.19% a year, the figure to compare with other investments.
Questions people ask
How do you calculate ROI?
Subtract what you invested from what you got back, divide by what you invested and multiply by 100. $10,000 turning into $14,500 is a 45% ROI.
What is annualized ROI?
The equivalent yearly return, with compounding. It lets you compare investments held for different lengths of time on the same basis.
What is a good ROI?
It depends on the risk and the alternative. Compare with what the same money could earn elsewhere with similar risk, such as a savings account for safe money or an index fund for long-term investing.
What's the difference between ROI and CAGR?
ROI is the total return over the whole period. CAGR, or annualized ROI, spreads it into a steady yearly rate. For one year held, they're the same.
How do I calculate marketing ROI?
Use the gross profit the campaign produced as the gain, not revenue, and the full campaign cost including time and tools as the investment. Using revenue makes marketing ROI look far better than it is.