A 'good' ROI depends on the investment type and risk. The S&P 500 historically returns about 10% annually. An ROI above 15-20% is generally considered strong for business investments. Marketing campaigns often target 5:1 returns (400% ROI). Always compare ROI against the risk-free rate and industry benchmarks.

What is the difference between ROI and ROE?

ROI measures return relative to the total investment cost. ROE (Return on Equity) specifically measures return relative to shareholders' equity. ROE is used for evaluating company performance, while ROI is broader and can apply to any investment.

Why should I use annualized ROI?

Annualized ROI normalizes returns to a yearly basis, making it possible to compare investments with different time horizons. A 50% return over 1 year is much better than 50% over 10 years. Annualizing makes this comparison clear.

Does ROI account for risk?

No, basic ROI does not factor in risk. Two investments with the same ROI may have very different risk profiles. For risk-adjusted analysis, consider metrics like the Sharpe ratio, Sortino ratio, or the risk-adjusted return on capital (RAROC).

Yes, a negative ROI means the investment lost money. If you invested $10,000 and the final value is $8,000, the ROI is -20%. Negative ROI indicates the investment underperformed even a 0% return.

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ROI calculator

Return on investment, annualized ROI, and net profit. Compare investments across different time horizons in one shot.

Calculate return on investment

Initial investment ($)

Final value ($)

Time period (years)

Reference

Typical annual ROI by asset class

Type	Annual ROI
S&P 500 (historical avg)	10–11%
Real estate	8–12%
Bonds	3–5%
SaaS software investment	20–40%
Marketing campaigns	5:1 ROAS (400%)
Equipment / machinery	10–20%

Method

How ROI is calculated

Basic ROI

Return on investment measures the gain or loss relative to the initial investment.

ROI = ((Final Value - Initial Investment) / Initial Investment) x 100

A 50% ROI means you earned 50 cents for every dollar invested.

Annualized ROI

Annualized ROI accounts for the time period, making it possible to compare investments of different durations.

Annualized ROI = ((Final Value / Initial Investment) ^ (1/Years) - 1) x 100

A 100% total ROI over 5 years is roughly 14.87% annualized. Much more useful for comparison than the raw total.

When to use ROI

ROI is useful for comparing the profitability of different investments, evaluating marketing campaigns, assessing capital expenditures, and making buy-vs-lease decisions. For more complex analysis, consider NPV or IRR which account for the time value of money.

Questions

Frequently asked

What is a good ROI?: A 'good' ROI depends on the investment type and risk. The S&P 500 historically returns about 10% annually. An ROI above 15-20% is generally considered strong for business investments. Marketing campaigns often target 5:1 returns (400% ROI). Always compare ROI against the risk-free rate and industry benchmarks.
What is the difference between ROI and ROE?: ROI measures return relative to the total investment cost. ROE (Return on Equity) specifically measures return relative to shareholders' equity. ROE is used for evaluating company performance, while ROI is broader and can apply to any investment.
Why should I use annualized ROI?: Annualized ROI normalizes returns to a yearly basis, making it possible to compare investments with different time horizons. A 50% return over 1 year is much better than 50% over 10 years. Annualizing makes this comparison clear.
Does ROI account for risk?: No, basic ROI does not factor in risk. Two investments with the same ROI may have very different risk profiles. For risk-adjusted analysis, consider metrics like the Sharpe ratio, Sortino ratio, or the risk-adjusted return on capital (RAROC).
Can ROI be negative?: Yes, a negative ROI means the investment lost money. If you invested $10,000 and the final value is $8,000, the ROI is -20%. Negative ROI indicates the investment underperformed even a 0% return.

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