ROI — Return on Investment — is the universal language of whether something was worth the money. Whether you're evaluating a stock, a marketing campaign, a rental property, or a college degree, ROI answers one question: how much did I get back for what I put in?
The ROI Formula
Basic ROI Formula
ROI = (Net Profit ÷ Cost of Investment) × 100
Or equivalently:
ROI = ((Final Value - Initial Cost) ÷ Initial Cost) × 100
Quick Example
You invest $10,000 in stocks and sell them a year later for $11,500.
ROI = ($11,500 - $10,000) ÷ $10,000 × 100 = 15%
For every dollar invested, you got back $1.15.
ROI in Different Contexts
Business marketing: You spend $2,000 on Google Ads and generate $8,000 in revenue with $3,000 in product costs. Net profit = $8,000 - $3,000 - $2,000 = $3,000. ROI = $3,000 ÷ $2,000 × 100 = 150%.
Real estate: You buy a rental property for $200,000, earn $18,000/year in rent, and have $8,000/year in expenses. Annual net = $10,000. ROI = $10,000 ÷ $200,000 × 100 = 5% (cash-on-cash return).
Education: A degree costing $80,000 that increases your lifetime earnings by $500,000 has an ROI of 525%. Even after accounting for 4 years of lost wages, the ROI of a college degree remains high for most fields.
Home improvement: A $25,000 kitchen renovation that increases your home value by $18,000 has an ROI of -28%. Not all renovations pay for themselves — some are lifestyle improvements, not investments.
What's a "Good" ROI?
💡 ROI Benchmarks
Stock market (S&P 500 average): 7-10% annually
Real estate rental: 6-12% annually
Business marketing: 200-500%+ (varies wildly)
Savings account: 4-5% (2026 rates)
Education (college degree): 10-15% annualized over career
Any investment with ROI above the risk-free rate (savings accounts/Treasury bonds, currently ~4-5%) is potentially worth considering, depending on the risk involved.
Limitations of ROI
ROI doesn't account for time. A 50% return in 1 year is far better than a 50% return over 10 years. When comparing investments, annualize the ROI for a fair comparison.
ROI ignores risk. A 15% ROI from a speculative startup carries vastly more risk than a 5% ROI from government bonds. Higher potential ROI usually means higher risk.
ROI can miss hidden costs. The ROI on a rental property looks great until you factor in management time, vacancy periods, and unexpected repairs. Include all costs for an accurate picture.
Calculate Your ROI
ROI Calculator
Calculate your return on investment for any business decision or investment.
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Calculate →The Bottom Line
ROI is the simplest way to evaluate any financial decision. Always calculate it before investing money, and remember to include all costs, account for time, and consider the risk involved. A high ROI with high risk isn't always better than a moderate ROI with low risk.