ROI Formula: How to Calculate Return on Investment

Return on investment, or ROI, compares net return with the cost of an investment.

ROI = ((Gain − Cost) ÷ Cost) × 100

If an investment costs $1,000 and produces a return of $1,200:

(($1,200 − $1,000) ÷ $1,000) × 100 = 20%

Use the ROI Calculator when you want to calculate the percentage quickly.

ROI formula

The WorkTools ROI calculation uses two inputs:

• Gain or return: the value received from the investment.
• Investment cost: the amount invested.

First calculate net return:

Net return = Gain − Cost

Then divide net return by cost and multiply by 100:

ROI = (Net return ÷ Cost) × 100

A positive result means the gain exceeded cost. A negative result means the gain was below cost.

Worked ROI example

Suppose a project costs $8,000 and later produces $10,000 of value under the definition you are using.

Net return:

$10,000 − $8,000 = $2,000

ROI:

($2,000 ÷ $8,000) × 100 = 25%

The ROI is 25%.

The usefulness of this result depends on whether your gain and cost inputs include all the items relevant to the decision.

How to calculate negative ROI

ROI can be negative.

Suppose an investment costs $5,000 and produces $4,000 of return:

(($4,000 − $5,000) ÷ $5,000) × 100 = -20%

The ROI is −20%. The investment returned less value than the amount entered as cost.

ROI vs profit

Profit and ROI are related but not interchangeable.

Profit is an amount:

Profit = Gain − Cost

ROI is that net return expressed relative to the cost:

ROI = Profit ÷ Cost × 100

Two investments can generate the same profit but have different ROI because the amount invested differs.

Example:

• Investment A: $2,000 profit on $10,000 cost = 20% ROI
• Investment B: $2,000 profit on $4,000 cost = 50% ROI

Both produced $2,000 of profit, but Investment B generated more profit per dollar of cost.

ROI vs profit margin

Profit margin generally compares profit with revenue, while ROI compares net return with investment cost.

That denominator difference matters. A 20% margin and a 20% ROI do not mean the same thing.

Use the Profit Margin Calculator when the question is how much of revenue remains as profit under the cost definition you are using.

ROI vs ROAS

ROAS focuses specifically on attributed advertising revenue compared with ad spend:

ROAS = Ad revenue ÷ Ad spend

ROI is broader and usually expresses net return relative to investment cost.

A campaign can show a high ROAS while overall ROI is much lower if product cost, fulfillment, fees, creative production, staffing, or other costs are material.

For the comparison in more detail, see ROAS vs ROI. If you only need ad revenue divided by ad spend, use the ROAS Calculator.

Why the time period matters

A simple ROI percentage does not automatically account for time.

A 20% ROI earned over three months and a 20% ROI earned over five years have the same simple percentage but very different timing.

When comparing investments with substantially different durations, simple ROI may not be enough. Depending on the decision, you may need an annualized return, cash-flow model, or another time-aware measure.

WorkTools’ ROI calculator provides the simple arithmetic ratio and does not annualize the result.

What costs should be included?

The correct cost definition depends on the decision being evaluated. Possible cost categories can include:

• purchase or project cost;
• implementation expense;
• advertising or distribution expense;
• fees;
• labor attributable to the project;
• maintenance or operating costs.

Do not add costs mechanically. Define the decision scope first, then use the same scope when comparing alternatives.

What counts as gain?

Gain can also require a clear definition. Depending on the use case it may mean sale proceeds, project value, incremental revenue, savings, or another measurable benefit.

For business analysis, avoid mixing revenue and profit definitions without stating what the input represents. The ROI percentage is only as meaningful as the gain and cost values entered.

ROI for marketing decisions

For marketing, ROI and ROAS can complement each other.

ROAS is useful for media efficiency because it isolates advertising revenue relative to ad spend. ROI can be useful when the decision needs a broader cost and return definition.

For example, an ad campaign may have:

• $10,000 ad spend;
• $50,000 attributed revenue;
• 5x ROAS.

But if the goods, fees, fulfillment, and other included costs materially reduce net return, the ROI based on the broader cost definition can be far lower than the ROAS multiple suggests.

Common ROI mistakes

Using revenue as net return

If your formula already subtracts cost, make sure the gain input and cost definition are clear. Calling gross revenue “profit” can overstate the interpretation.

Leaving out material costs

A narrow cost definition can make ROI appear stronger. Use a cost scope appropriate for the decision.

Comparing different time horizons without context

A simple ROI percentage does not show how long the return took to earn.

Mixing ROI and ROAS

ROAS is not simply another name for ROI. They use different definitions and answer different questions.

Dividing by zero

If investment cost is zero, the standard ROI formula is undefined.

FAQ

What does 20% ROI mean?

Under the inputs used, net return equals 20% of the investment cost. It does not by itself show timing, risk, or whether every relevant cost was included.

Can ROI be over 100%?

Yes. If net return is greater than the original cost, ROI can exceed 100%.

Is negative ROI possible?

Yes. Negative ROI means the gain entered is less than the investment cost.

Is ROI the same as annual return?

No. Simple ROI does not automatically account for the length of time the investment was held.

Calculate ROI

Enter gain and investment cost in the ROI Calculator, then use a consistent definition when comparing projects or campaigns. For advertising-specific revenue efficiency, compare the result with ROAS.