How to Calculate ROI for Any Investment — Step-by-Step Guide
How to Calculate ROI for Any Investment explained in simple steps, with real-life examples, a quick formula for featured snippets, tables, and FAQs so you can measure performance confidently.
Quick Answer (Featured Snippet-ready)
ROI (Return on Investment) = (Net Profit ÷ Cost of Investment) × 100.
- Calculate total gain from the investment (final value or revenue).
- Subtract the original cost to get Net Profit.
- Divide Net Profit by the original cost and multiply by 100 to get ROI %.
Example (short): Invest ₹100,000, end value ₹130,000 → Net Profit ₹30,000 → ROI = (30,000 ÷ 100,000) × 100 = 30%.
Why ROI Matters
ROI is the easiest and most widely used metric to compare the profitability of different investments — from stocks and rental properties to marketing campaigns and equipment purchases. It helps you answer: Is this investment worth it?
- Simple: single percentage makes comparison easy.
- Flexible: works for one-time investments and ongoing projects.
- Decision-ready: helps prioritize limited capital.
Standard ROI Formula and Variations
Basic ROI Formula
ROI (%) = (Gain from Investment − Cost of Investment) / Cost of Investment × 100
When to Use Which Formula
- One-time purchase (e.g., equipment): use basic formula.
- Recurring returns (e.g., rental income): use annualized ROI or IRR for better accuracy.
- Marketing campaigns: treat campaign cost as investment, revenue from campaign as gain.
Annualized ROI (simple approach)
To compare across time periods, convert ROI to an annual basis:
Annualized ROI ≈ [(1 + ROI decimal)^(1/years) − 1] × 100
Step-by-Step Examples
Example 1 — Stock Investment
Purchase: ₹50,000 worth of shares. After 2 years you sell for ₹72,000. Dividends: ₹2,000 over the period.
- Gain from investment = ₹72,000 + ₹2,000 = ₹74,000
- Cost = ₹50,000
- Net profit = ₹74,000 − ₹50,000 = ₹24,000
- ROI = (24,000 ÷ 50,000) × 100 = 48% over 2 years
- Annualized ≈ [(1 + 0.48)^(1/2) − 1] × 100 ≈ 22.5% per year
Example 2 — Marketing Campaign ROI
Cost of campaign: ₹1,200. Sales directly attributed: ₹5,000.
Net profit = 5,000 − 1,200 = 3,800 → ROI = (3,800 ÷ 1,200) × 100 = 316.7%
Example 3 — Small Business Equipment
Buy a machine for ₹200,000 that increases annual profit by ₹50,000. Simple payback and ROI after 1 year:
- ROI after 1 year = (50,000 ÷ 200,000) × 100 = 25%
- Payback period = 200,000 ÷ 50,000 = 4 years
ROI Comparison Table
| Investment Type | Cost (₹) | Gain (₹) | Net Profit (₹) | ROI % |
|---|---|---|---|---|
| Stock (2 years) | 50,000 | 74,000 | 24,000 | 48% |
| Marketing Campaign | 1,200 | 5,000 | 3,800 | 316.7% |
| Business Machine (1 year) | 200,000 | 50,000 | 50,000 | 25% |
Common ROI Mistakes to Avoid
- Ignoring time: comparing multi-year ROI to single-year ROI without annualizing.
- Overlooking hidden costs: taxes, fees, maintenance, or customer acquisition cost reduce real ROI.
- Using revenue instead of profit: always use net profit not gross revenue.
- Not accounting for risk: higher ROI targets often come with higher risk.
Advanced Considerations
If you need deeper accuracy, use IRR (Internal Rate of Return) or NPV (Net Present Value) for cash flows over multiple periods. For quick decisions and comparisons, ROI is usually adequate.
Tip: When evaluating campaigns or projects, track ROI by channel and prioritize those with the best risk-adjusted returns.
Tools & Calculator
Use a spreadsheet or online ROI calculator. Here's a simple template you can paste into a sheet:
- Cell A1: Cost
- Cell A2: Gain
- Cell A3 formula: =(A2 - A1)/A1
- Convert A3 to percentage for ROI %
Related Resources
Want to dig deeper? Try these guides:
Frequently Asked Questions (FAQ)
What is a good ROI?
What counts as a "good" ROI depends on the asset class and risk. Many conservative investors look for annual returns of 6–12%. Businesses may target higher ROI for short projects — always consider risk and time horizon.
How do I annualize ROI?
Use: Annualized ROI ≈ [(1 + ROI decimal)^(1/years) − 1] × 100. This converts multi-year ROI into an annual rate for fair comparison.
Does ROI include taxes and fees?
To get an accurate ROI, yes — subtract taxes, transaction fees, maintenance costs and other expenses from your gain before calculating ROI.
Can ROI be negative?
Yes. If your gain is less than your cost, ROI will be negative — which signals a loss.
Conclusion — How to Calculate ROI for Any Investment
Learning how to calculate ROI for any investment gives you a simple, powerful tool to compare opportunities and make smarter decisions. Use the formula, watch for hidden costs, and annualize when comparing across time periods. Keep tracking and improving — data-driven decisions grow wealth over time.
Takeaway: Always calculate ROI before committing capital. If it looks good on paper and fits your risk profile, act — otherwise revise or walk away.
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