ROI Explained: What It Is, How to Calculate It & When to Use It
ROI — Return on Investment — is one of the most widely used metrics in business, investing, and marketing. It answers a simple but critical question: for every dollar I put in, how much do I get back? Understanding ROI helps you compare opportunities, justify spending, and make smarter decisions.
The ROI Formula
ROI = ((Return − Investment) ÷ Investment) × 100
Example: You invest $5,000 in a marketing campaign. It generates $8,000 in revenue. ROI = (($8,000 − $5,000) ÷ $5,000) × 100 = 60% ROI.
A positive ROI means you made money. A negative ROI means you lost money. A 0% ROI means you broke even.
ROI Examples Across Different Contexts
Stock Investment
35% ROIBought shares, sold after 1 year
Marketing Campaign
200% ROIFacebook ads generating sales
Real Estate
36% ROIDown payment + rental income over 3 years
Online Course
740% ROISkills leading to higher-paying work
What Is a Good ROI?
There's no universal "good" ROI — it depends entirely on the asset class, risk level, and time horizon:
Limitations of ROI
ROI is powerful but has blind spots:
Ignores time
A 50% ROI over 10 years is very different from 50% in 6 months. Use annualized ROI for fair comparisons.
Ignores risk
Two investments with the same ROI can have very different risk profiles. Higher ROI often means higher risk.
Hard to measure intangibles
Brand awareness, employee training, and customer satisfaction have ROI that's difficult to quantify.
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