Business
ROI Calculator
Works return on investment, where the period and the definition carry the result.
Result
Simple ROI ignores timing. A 60% return over two years is not as good as 60% in one, which is why the annualised figure is the fairer comparison between options.
Get a Free Business AuditHow the calculation works
The gain from an investment less its cost, divided by the cost. The figure is meaningless without a period, since a return of a given size over one year and over five are entirely different outcomes, and it is comparable only when both sides use the same definition of gain.
What moves the number
- Period over which the return is measured.
- Whether gain is revenue, margin or cash.
- All costs, including ongoing ones.
- Whether the gain would have occurred anyway.
Where this one goes wrong
Using revenue as the gain overstates return by the whole cost of delivery and is the most common distortion in this calculation, which is why margin is the right numerator for anything operational. State the period alongside the percentage, because a return without one invites comparison against returns measured over different horizons. Incrementality is the harder question, since a gain that would have occurred regardless is not a return on anything.
Before you quote
- State the period alongside the percentage.
- Use margin or cash as the gain, not revenue.
- Include ongoing costs, not just the initial outlay.
Questions
About this calculator
Why does a return need a period?
Because the same percentage over one year and over five are entirely different outcomes. A return quoted without its period invites comparison against returns measured over different horizons, which is not a comparison at all.
Should the gain be revenue or profit?
Margin or cash for anything operational, since revenue overstates the return by the whole cost of delivery. Using revenue is the most common distortion in this calculation and it makes unprofitable investments look successful.
What is incrementality?
Whether the gain would have happened without the investment. A result that would have occurred regardless is not a return on anything, and it is the question that separates a measurement from an attribution.
The formula
ROI = (return − cost) ÷ cost × 100
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Please keep the attribution line. It is the only thing we ask in return.
How to use this calculator
- Amount invested ($). Enter your own figure; the page starts at $20,000.
- Amount returned ($). Enter your own figure; the page starts at $32,000.
- Over how many years. Enter your own figure; the page starts at 2.
The result updates as you type, so you can try a figure, see what it does to return on investment, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Amount invested | $20,000 |
| Amount returned | $32,000 |
| Over how many years | 2 |
What comes out
| Result | Value |
|---|---|
| Return on investment main result | 60.00% |
| Net gain | $12,000 |
| Annualised return | 26.49% |
| Return multiple | 1.6× |
Turning 20,000 into 32,000 is an ROI of 60.00%, 26.49% a year over 2 years.
How sensitive the answer is
Holding everything else steady and changing only amount invested, this is what happens to return on investment. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Amount invested ($) | Return on investment |
|---|---|
| $10,000 | 220.00% |
| $15,000 | 113.33% |
| $20,000 example above | 60.00% |
| $30,000 | 6.67% |
| $40,000 | -20.00% |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Amount invested ($)
- A money amount, starting at $20,000.
- Amount returned ($)
- A money amount, starting at $32,000.
- Over how many years
- A number, between 0 and 100, starting at 2.
What the results tell you
| Result | What it is |
|---|---|
| Return on investment | The headline result. A percentage. |
| Net gain | A money figure. |
| Annualised return | A percentage. |
| Return multiple | A number. |
Where these figures usually mislead
Business calculations assume the inputs are steady. Seasonality, a few large customers, and slow payment all break that assumption. A figure that looks healthy annually can still leave you short in a given month.
Keep going
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