On This Page
- What ROI means
- ROI formula
- Annualized ROI
- Rental and real estate ROI
- Marketing ROI
- Amazon FBA ROI
- Other uses, stocks, solar, business
- ROI in Excel
- Worked examples
- Frequently asked questions
What ROI Means
Return on investment answers one question: for every dollar spent, how many dollars came back? A 50% ROI means you made $0.50 for every $1.00 invested. A −20% ROI means you lost $0.20 per dollar.
ROI does not account for time by itself. A 50% return over 10 years is a very different result from a 50% return in one year. For that reason, this calculator also shows annualized ROI, the equivalent per-year rate that produces the same total result over the holding period. When comparing investments of different lengths, always use annualized ROI, not total ROI.
One other thing to watch: keep your return figures consistent. A rental property ROI calculated on pre-tax income compared against a stock ROI calculated after capital gains tax are not directly comparable. Pick one basis and use it throughout.
ROI Formula
Net gain is final value minus initial investment, so this is the same as: ROI = net gain ÷ initial investment × 100. A positive result means profit; negative means loss.
What counts as initial investment
Include everything you spent to make the investment: purchase price, fees, setup costs, and any other upfront outlay. For a stock purchase, include brokerage fees. For a property, include purchase price, closing costs, renovation, and acquisition costs. Leaving out costs inflates your ROI and makes the investment look better than it was.
What counts as final value
The total you got back. For a stock: sale proceeds plus dividends received. For a rental property: cumulative net rent plus eventual sale price (or current market value). For a marketing campaign: revenue or gross profit attributable to that campaign.
Annualized ROI
Annualized ROI converts a total return into a per-year rate, making it possible to compare investments that ran for different lengths of time. It is also called CAGR (Compound Annual Growth Rate) when applied to investments.
Example: $10,000 invested, $14,500 returned, 3 years. Simple ROI = 45%. Annualized ROI = (1.45^(1/3) − 1) × 100 ≈ 13.2% per year.
A 100% total ROI over 10 years is only 7.2% annualized, roughly the long-run stock market average. The same 100% over one year would be exceptional. Always note the time frame when quoting an ROI figure.
- Use simple ROI for projects of equal duration, or when time is irrelevant (a single campaign).
- Use annualized ROI when comparing investments held for different lengths, or benchmarking against an annual rate.
- Annualizing a period shorter than 6 months produces numbers that are technically correct but have no practical meaning.
Rental and Real Estate ROI
There are two versions of rental property ROI: cash-on-cash (return on your actual cash) and total ROI (which includes appreciation).
Cash-on-cash ROI
Annual net income = gross rent − mortgage payments − property taxes − insurance − maintenance − vacancy allowance − management fees. Total cash invested is your actual out-of-pocket spend: down payment, closing costs, and initial repairs. The mortgage balance is not your money, it is the lender's investment, so exclude it from the denominator.
Example: $40,000 invested (down payment + closing + repairs). Gross rent $18,000/year. Annual expenses $14,400. Net income = $3,600. Cash-on-cash ROI = $3,600 ÷ $40,000 = 9%. A range of 8–12% is generally considered solid in most markets.
Because the mortgage uses the bank's money, properties financed with leverage often show higher cash-on-cash ROI than all-cash purchases, leverage amplifies returns in both directions.
Total ROI including appreciation
Enter total cash invested as initial investment and the sum of all cumulative net rental income plus equity gain (or sale proceeds) as final value. Add the years held for annualized ROI.
Short-term rentals (Airbnb)
The formula is identical, but income inputs differ. Annual gross income = occupancy rate × nightly rate × 365. Expenses include platform fees, cleaning costs absorbed by the owner, utilities, supplies, and management. Enter total upfront costs as initial investment and net income as the return. For a multi-year projection, use total net income over the hold period as final value.
Marketing ROI
Marketing ROI measures revenue (or profit) generated by a campaign relative to what it cost to run.
The critical decision is whether "return" means revenue or gross profit. If your gross margin is 40%, a campaign that breaks even on revenue is losing money once product costs are included. Use gross profit where possible, revenue-based ROI and profit-based ROI for the same campaign can differ by a factor of 4 or more. The Profit Margin Calculator verifies your gross, operating, and net margins before you set an ROI target.
Example: Email campaign costs $3,000, generates $12,000 attributed revenue at 40% margin. Gross profit = $4,800. ROI on gross profit = ($4,800 − $3,000) ÷ $3,000 × 100 = 60%. On revenue alone it would read 300%, always specify which basis you are using.
SEO and digital channels
For SEO, enter total spend (agency, tools, content) as initial investment and total organic revenue (or attributed gross profit) over the same period as final value. Because SEO compounds over time, annualized ROI is more meaningful than a point-in-time snapshot. For paid social and display, use total ad spend as initial investment and attributed conversions as the return, and note which attribution model (last-click, linear, data-driven) produced the revenue figure.
Amazon FBA ROI
FBA ROI measures return on the total money needed to source, ship, and sell a product.
Total unit cost includes: product cost, inbound shipping to Amazon, referral fee (typically 8–15% of selling price by category), FBA fulfillment fee, storage fees, and PPC advertising cost per unit sold.
Example: Selling price $28. Product cost $6, shipping $2, referral fee $4.20, FBA fee $3.50, PPC $3. Total cost = $18.70. Net profit = $9.30. ROI = $9.30 ÷ $18.70 × 100 = 49.7%.
To calculate ROI for a full purchase order, scale both sides: enter total order cost (all units) as initial investment and total sales revenue as final value. Most FBA sellers need ROI above 30% to have meaningful buffer for returns, storage, and fee changes.
Other Uses, Stocks, Solar, Business
Stock ROI
Enter total amount paid (share price × shares + brokerage fees) as initial investment, and total return (sale price × shares + dividends received) as final value. Add the holding period for annualized ROI to benchmark against index returns.
Solar ROI
Enter net installation cost (after rebates and tax credits) as initial investment. For total ROI over the system life (typically 25–30 years), multiply annual energy savings by years held and use that as final value. Solar annualized ROI commonly runs 8–20% depending on location, energy costs, and incentive programs.
Business project ROI
Enter total project cost as initial investment and the total measurable benefit, revenue gain, cost savings, or both, over the evaluation period as final value. For multi-year projects, add years held to see annualized ROI alongside the total figure.
ROI in Excel
With initial investment in A1, final value in A2, and years in A3:
| Cell | Label | Formula | Example result |
|---|---|---|---|
| A1 | Initial investment | — | 10000 |
| A2 | Final value | — | 14500 |
| A3 | Years held | — | 3 |
| A4 | Net gain | =A2-A1 | 4500 |
| A5 | ROI | =(A2-A1)/A1 | 45% (format as %) |
| A6 | Annualized ROI | =(A2/A1)^(1/A3)-1 | 13.2% (format as %) |
| A7 | Return multiplier | =A2/A1 | 1.45 |
Format A5 and A6 as percentages (Ctrl+Shift+%) or multiply by 100 for a plain number. Guard the annualized formula against zero years: =IF(A3=0,"—",(A2/A1)^(1/A3)-1).
Worked Examples
Example 1, Stock investment
100 shares bought at $85 ($8,500 total), sold at $112 ($11,200 total) after 2 years.
- Net gain = $11,200 − $8,500 = $2,700
- ROI = $2,700 ÷ $8,500 × 100 = 31.8%
- Annualized = (1.318^0.5 − 1) × 100 ≈ 14.8% per year
Example 2, Rental property cash-on-cash
$50,000 invested (down payment + repairs + closing). Gross rent $21,600/year. Expenses $16,200/year.
- Annual net income = $21,600 − $16,200 = $5,400
- Cash-on-cash ROI = $5,400 ÷ $50,000 × 100 = 10.8%
Example 3, Marketing campaign (gross profit basis)
Paid search campaign cost $8,000. Attributed revenue $34,000. Gross margin 40%.
- Gross profit = $34,000 × 0.40 = $13,600
- Net gain = $13,600 − $8,000 = $5,600
- ROI = $5,600 ÷ $8,000 × 100 = 70% (on revenue alone it reads 325%, a very different story)
Example 4, Amazon FBA purchase order
500 units sourced at $7 ($3,500). Inbound shipping $400. Amazon fees $2,750. Advertising $600. Total sales $9,500.
- Total cost = $3,500 + $400 + $2,750 + $600 = $7,250
- Net gain = $9,500 − $7,250 = $2,250
- ROI = $2,250 ÷ $7,250 × 100 = 31%
Example 5, Solar over 20 years
Net installation cost $15,000. Annual energy savings $1,400.
- Total savings = $1,400 × 20 = $28,000
- Total ROI = ($28,000 − $15,000) ÷ $15,000 × 100 = 86.7%
- Annualized = ($28,000 ÷ $15,000)^(1/20) − 1 ≈ 3.2% per year
Frequently Asked Questions
How do you calculate ROI?
ROI = (final value − initial investment) ÷ initial investment × 100. Subtract what you put in from what you got back, divide by what you put in, and multiply by 100. A positive result is a gain; negative is a loss. Make sure initial investment includes all costs, partial cost figures inflate the result.
How do you calculate annualized ROI?
Annualized ROI = ((final value ÷ initial investment)^(1 ÷ years) − 1) × 100. For $10,000 returning $14,500 over 3 years: (1.45^(1/3) − 1) × 100 ≈ 13.2% per year. Enter the years field in the calculator to get this alongside the simple result.
How do you calculate rental property ROI?
Cash-on-cash ROI = annual net rental income ÷ total cash invested × 100. Net income is gross rent minus all expenses (mortgage payments, tax, insurance, maintenance, vacancy). Cash invested is your out-of-pocket total, down payment, closing costs, and repairs. Do not include the mortgage balance; that is the lender's money, not yours.
How do you calculate marketing ROI?
Marketing ROI = (return − campaign cost) ÷ campaign cost × 100. Use gross profit as the return, not revenue, if margins are 40%, revenue-based ROI will read roughly 2.5× higher than profit-based ROI for the same campaign. Always state which basis you used when reporting the number.
How do you calculate ROI for Amazon FBA?
ROI per unit = (selling price − all unit costs) ÷ total unit cost × 100. Unit costs: product cost, inbound shipping, Amazon referral fee, FBA fulfillment fee, and allocated ad spend. Most FBA sellers need ROI above 30% to maintain a workable buffer for returns, fee changes, and storage.
What is a good ROI?
It depends entirely on asset class and time frame. The long-run stock market average is roughly 8–10% annualized. Rental investors often target 8–12% cash-on-cash. Marketing campaigns in e-commerce typically need 200–400% ROI (revenue-based) to remain profitable after product costs. There is no universal benchmark, compare within the same asset class and always specify whether the figure is annualized or total.
What is the difference between ROI and profit margin?
ROI compares profit to the cost of the investment. Profit margin compares profit to revenue. At $100 selling price and $60 cost: ROI = $40 ÷ $60 = 66.7%. Profit margin = $40 ÷ $100 = 40%. ROI is used for investment decisions; profit margin is used for pricing and financial reporting. To find the sales volume where a business investment first turns profitable, the point at which ROI turns positive, the Break Even Point Calculator shows that threshold in units and revenue.
What is cash-on-cash ROI?
Cash-on-cash ROI is annual pre-tax cash income as a percentage of the actual cash you invested. It is standard in real estate. Because it excludes appreciation and mortgage paydown, it measures only current cash flow, how much real cash you receive each year relative to your own capital at risk.
References
- Return on Investment (ROI), Investopedia: formula, worked examples, and comparison with IRR and net present value.
- Cash-on-Cash Return, Investopedia: how cash-on-cash ROI is used in real estate and why it differs from total ROI on a leveraged property.
- Compound Annual Growth Rate (CAGR), Investopedia: how CAGR (annualized ROI) is calculated and why it is used to compare investments held for different lengths of time.