How to Calculate ROI
Return on Investment (ROI) measures how much profit you made relative to what you spent. It's one of the most widely used metrics in investing and business because it's simple, comparable, and works across any asset class.
The basic formula: ROI = ((Final Value − Initial Investment) ÷ Initial Investment) × 100. A 50% ROI means you made 50 cents for every dollar invested. A negative ROI means a loss.
For comparing investments held over different periods, use the annualized return (also called CAGR): it converts your total return into a consistent yearly rate, making apples-to-apples comparison possible.
Frequently Asked Questions
What is a good ROI?
A 'good' ROI depends on the investment type and timeframe. For stock market investments, 7–10% annually is considered solid. Real estate typically targets 8–12%. For business investments, 15–25%+ is common. Always compare ROI against your opportunity cost — what you'd earn in a risk-free alternative like a savings account or bonds.
What is the difference between ROI and annualized return?
Total ROI is the overall percentage gain from start to finish, regardless of time. Annualized return breaks that down into a consistent annual rate, making it easier to compare investments held for different periods. A 50% total ROI over 5 years is very different from 50% over 1 year.
Does ROI account for inflation?
Standard ROI is a nominal figure — it doesn't adjust for inflation. To get real (inflation-adjusted) ROI, subtract the inflation rate from your annualized return. Use our Inflation Calculator to see the purchasing power impact.
What is a "multiple on money" (MoM)?
Multiple on money shows how many times your original investment grew. A 2× MoM means you doubled your money; 3× means you tripled it. It's common in private equity and venture capital. A 2× MoM over 5 years is equivalent to roughly 15% annualized return.
How do I calculate ROI on real estate?
For real estate ROI: (Annual Rental Income − Annual Expenses) ÷ Total Property Cost × 100. For example, a $200,000 property generating $18,000/year in rent with $6,000 in expenses has an ROI of (18,000 − 6,000) ÷ 200,000 × 100 = 6%. Add appreciation to get total return. Use our calculator above with your purchase price as Initial Investment and (sale price + total net rent) as Final Value.
What is a good ROI for a small business?
Most small businesses target 15–30% annual ROI. Retail typically sees 10–20%, while service businesses can reach 30–50%. The key benchmark is whether your ROI beats your next-best alternative — if a high-yield savings account offers 5%, your business needs to significantly exceed that to justify the risk and effort.