It depends on the investment's risk and timeframe. Compare an ROI against realistic alternatives rather than a fixed benchmark number.

Does ROI account for time?

No. A 30% ROI in one year is far better than the same over ten. Annualize the figure to compare investments of different lengths fairly.

What's the difference between ROI and profit margin?

ROI compares gain to what you invested; profit margin compares profit to revenue (the selling price). They answer different questions.

What Is ROI and How Do You Calculate It?

Published 9/19/2025 · 3 min read · Business tools

Camille Laurent — Finance writer at Allin

Tax · Personal finance

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In short

ROI (return on investment) measures how much you gained relative to what you put in, as a percentage: ROI = (net profit ÷ cost) × 100, where net profit = amount returned − amount invested. Invest $1,000 and get back $1,300, and your ROI is (300 ÷ 1,000) × 100 = 30%. A positive ROI means a gain; a negative one means a loss.

ROI measures your gain relative to what you invested, as a percentage. Here's the formula, a worked example, and what ROI leaves out.

What ROI means

Return on investment expresses your gain as a share of what you spent, which makes wildly different things comparable: a marketing campaign, a machine, a stock, a course. Because it is a single percentage, a 30% ROI on a small project and a 30% ROI on a large one describe the same efficiency of capital, even if the euro amounts differ hugely.

The formula

ROI = (return − cost) ÷ cost × 100. Work out the net profit first — what you got back minus what you put in — then express it as a percentage of the cost. Spend $1,000 and receive $1,300: net profit is $300, and $300 ÷ $1,000 × 100 = 30%. The same formula flags losses: get back only $800 and the ROI is −20%.

What ROI leaves out

The basic ratio ignores two big things: time and risk. A 30% ROI earned in one year is far better than the same 30% over ten, yet the raw number looks identical — so annualize it when comparing periods. It also says nothing about how likely the return was; a safe 8% can beat a risky 30%. Read ROI alongside how long and how risky.

Using ROI to decide

ROI shines for ranking options on the same footing: run it on each candidate and, all else equal, the higher ROI wins. But 'all else equal' rarely holds, so weigh the time each takes and the risk each carries, and pair ROI with the payback period and break-even to see not just how much you gain but how soon and how safely.

Worked with our own calculator

ROI calculator (return on investment)

Given

Amount invested ({cur}): 2,000
Amount returned ({cur}): 2,600

Result

Net profit: $600.00
ROI (%): 30%

These figures are produced by the calculator below, not typed in by hand — they are recomputed whenever the tool changes.

Run it on your own figures →

Frequently asked questions

What is a good ROI?: It depends on the investment's risk and timeframe. Compare an ROI against realistic alternatives rather than a fixed benchmark number.
Does ROI account for time?: No. A 30% ROI in one year is far better than the same over ten. Annualize the figure to compare investments of different lengths fairly.
What's the difference between ROI and profit margin?: ROI compares gain to what you invested; profit margin compares profit to revenue (the selling price). They answer different questions.

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