Util Tools What is ROI?
Return on investment (ROI) measures how much you gained or lost relative to what you put in, expressed as a percentage. It is the most common yardstick for comparing the profitability of very different things, from a stock purchase to a marketing campaign to a piece of equipment, because it reduces every outcome to a single comparable number.
The ROI formula
The basic formula is ROI = (net gain / cost) * 100, where net gain is the final value minus the original cost. If you invest $1,000 and it becomes $1,250, your net gain is $250 and your ROI is 25%. A negative ROI means you lost money. The calculator above also shows your payback period, the time it takes to recover your original outlay.
Why annualized ROI matters
Basic ROI ignores time, which makes it misleading on its own: a 25% return is excellent in one year but poor over ten. Annualized ROI converts the total return into an equivalent yearly rate, so you can fairly compare investments held for different lengths of time and benchmark them against alternatives like an index fund.
Marketing ROI is different
For marketing, revenue is not pure profit, so a meaningful ROI must account for the cost of goods. Marketing ROI is typically calculated on gross margin: (revenue * gross margin - marketing cost) / marketing cost. A campaign that "doubles revenue" can still lose money once product costs are included, which is why this tool offers a margin-adjusted marketing mode alongside the basic and annualized ones.
ROI vs. profit margin
ROI and profit margin answer different questions. ROI compares your gain to the amount invested; profit margin compares profit to revenue. A business can have a healthy margin but poor ROI if it tied up a lot of capital, or vice versa. Use ROI to judge an investment decision and margin to judge the profitability of sales.
This tool is for general analysis and is not financial advice.
Last updated: July 2026