How to Calculate ROI
Return on investment turns a profit into a comparable percentage — but the simple formula hides two traps: time and total cost. Here's how to get it right.
Try the roi calculatorPut these numbers to workOpen →Return on investment (ROI) measures how much you gained relative to what you put in, expressed as a percentage so you can compare very different investments on the same scale. It's the go-to metric for judging whether something was worth the money.
The basic formula
The number is only as honest as the two figures you feed it. The 'initial cost' should include every cost — fees, taxes, time and money spent along the way — not just the headline purchase price. Leave costs out and the ROI looks better than reality.
The time trap
Plain ROI ignores how long the money was tied up. A 25% return in one year is excellent; the same 25% over ten years is mediocre. To compare fairly, convert to an annualized return — otherwise a slow winner can masquerade as a strong one.
What ROI doesn't tell you
- •Risk — a high ROI can come with a high chance of loss.
- •Timing of cash flows — money returned early is worth more than money returned late.
- •Scale — a 100% ROI on $50 is less meaningful than 10% on $50,000.
- 1Add up the full initial cost, including fees and extras.
- 2Record the final value you received or expect.
- 3Apply the ROI formula for the raw percentage.
- 4Annualize it if the holding periods you're comparing differ.