Return on Investment (ROI) is a performance metric used to evaluate the efficiency or profitability of an investment. It measures the return relative to the investment cost and is one of the most widely used financial ratios in business and personal finance.
ROI = [(Net Return / Cost of Investment)] × 100
Net Return = Final Value of Investment − Cost of Investment. Cost of Investment = total amount invested. Result is expressed as a percentage.
Example 1: Bought equipment for $15,000. After 3 years it generated $22,000 in net revenue.
Result: ROI = 46.67% over 3 years
Example 2: Marketing campaign cost $5,000 and generated $12,500 in attributed revenue
Result: ROI = 150%
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