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ROI Calculator

Calculate Return on Investment for your business and investment decisions

ROI Formula

Simple ROI: (Total Returns - Total Investment) / Total Investment × 100
Annualized ROI: (Total Returns / Total Investment)^(1/Years) - 1 × 100
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ROI Calculator Guide: Calculate Return on Investment & Analyze Profitability

An ROI calculator computes return on investment as a percentage so you can compare projects and purchases. Enter total costs and returns to see both simple ROI and annualized figures.

What is ROI Calculator?

The ROI calculator aggregates cost and benefit items, then outputs ROI, payback period, and optional annualized ROI to reflect time. It is useful for marketing, equipment, and software decisions.

How to Use the ROI Calculator

  1. List costs: purchase, implementation, training, and ongoing fees.
  2. List gains/returns: revenue increases or cost savings by period.
  3. Calculate simple ROI and, if timing matters, annualized ROI.
  4. Compare scenarios (optimistic, base, conservative).
  5. Use NPV/IRR for rigorous time-value comparison when cash flows vary.

Formulas & Methods

  • Simple ROI: ROI = (Gain - Cost) / Cost.
  • Annualized ROI (approx): ROI_annual ~ (1 + ROI_total)^(1/years) - 1.
  • Payback: first period when cumulative gains exceed costs.
  • Link to NPV/IRR: compute NPV at discount rate r and IRR where NPV=0 for dated cash flows.

Assumptions & limitations

  • Simple ROI ignores time and risk; good for quick screening only.
  • Include only relevant costs/benefits; avoid double-counting.
  • Taxes and depreciation can change cash flows; include if material.

Examples

Example A — Equipment
Cost $50,000; annual savings $15,000.
ROI_total over 5y = (75,000 - 50,000) / 50,000 = 50%.
Annualized ~ (1.5)^(1/5) - 1 ~ 8.4%. Payback 50,000/15,000 ~ 3.3 years.

Example B — Marketing
One-time cost $12,000; incremental gross profit $5,000/yr x 3 years => $15,000.
ROI_total = (15,000 - 12,000)/12,000 = 25%; annualized ~ 7.7%.

| Metric | Meaning | |---|---| | ROI | Return per dollar invested | | Annualized ROI | Time-adjusted | | Payback | Months/years to recover cost |

Pro Tips & Best Practices

  • Compare ROI to a hurdle rate or alternative uses of capital.
  • Run sensitivity on key drivers (price, adoption, utilization).
  • Convert soft benefits to hard savings where possible.
  • Use NPV/IRR for long, uneven cash flows; ROI is a quick first look.

Related Calculators

FAQ

Q: How do you calculate ROI?

A: ROI = (Gain from Investment - Cost of Investment) / Cost of Investment, expressed as a percentage.

Q: What costs should I include?

A: Include all relevant costs like purchase price, fees, installation, training, and ongoing maintenance.

Q: What is a good ROI?

A: Depends on risk and alternatives; compare to your hurdle rate or the returns of similar projects.

Q: How does time factor in?

A: ROI ignores time. Use annualized ROI or NPV/IRR to account for timing and risk.

Q: What is payback period?

A: The time it takes to recover the initial investment from net cash inflows.

Compliance note: This article is for information only and not financial advice.

Call to Action

Enter all costs and benefits to compute ROI, payback, and annualized figures—then compare scenarios to choose the best option.