RETURN ON INVESTMENT
What ROI tells you
ROI shows the profit or loss from an investment as a percentage of what you spent.
FORMULA
ROI formula
Take the investment cost away from the final value. Divide that amount by the investment cost, then multiply by 100.
EXAMPLE
$1,000 invested, $1,500 returned
The net profit is $500. That is a 50% return on the original $1,000 investment.
- Investment cost
- $1,000
- Net profit
- $500
- Total ROI
- 50%
TIME MATTERS
Use annualized ROI for different time periods.
A 50% return in one year and a 50% return in five years are not equal. Annualized ROI gives both returns a yearly rate.
Simple ROIShows the total return
Annualized ROIShows a yearly return
ROASUses revenue, not profit
QUESTIONS
ROI questions
How do you calculate ROI?
Subtract the investment cost from the final value. Divide that profit or loss by the investment cost, then multiply by 100.
What does a 50% ROI mean?
A 50% ROI means you made $0.50 in profit for every $1 you invested. A $1,000 investment that ends at $1,500 has a $500 profit and a 50% ROI.
What is annualized ROI?
Annualized ROI turns a total return into a yearly rate. It helps compare investments that were held for different lengths of time.
What costs should I include in ROI?
Include the purchase price, fees, setup costs, and other costs needed to make the investment. Leaving costs out makes the return look higher than it is.
What is the difference between ROI and ROAS?
ROI compares profit with cost. ROAS compares revenue with ad spend. ROAS can look positive even when a campaign is not profitable.