Return on Investment (ROI)

Return on Investment (ROI) is a financial metric used to evaluate the profitability of an investment.1

It tells you how much money you made (or lost) compared to how much you spent on the investment.

People use ROI to check how well an investment is doing or to compare different investments.2


The basic formula for ROI is:

roi formula

How ROI Is Calculated?

ROI is calculated by dividing the net profit from an investment by the initial cost of the investment, then multiplying the result by 100 to convert it into a percentage.

ROI = (Net Profit / Total Investment) x 100

  • Net Profit: This is the gain you receive from the investment after subtracting any associated costs. For example, if you sell a stock for $20 that you originally bought for $10, your net profit would be $10 (selling price – buying price).
  • Total Investment: This is the total amount of money you initially put into the investment.3


The primary purpose of ROI is to evaluate the efficiency or profitability of an investment.

It provides a quick and clear way to assess the return on your investment compared to the amount of money you put in.4


ROI is widely used across various fields and industries.

Here are some common areas where ROI is particularly useful:

  • Businesses: To see if the money they spend on things like new projects, technology, or ads brings in more money than it costs.
  • Stocks: Investors look at ROI to determine how much money they make from their investments in stocks or bonds.
  • Houses: People buying property use ROI to determine whether a house or building will earn them money through rent or later sale at a higher price.
  • Ads and Marketing: Companies check their ads’ ROI to ensure they get their money’s worth in bringing in new customers.
  • New Companies: Folks starting a new business or investing in one use ROI to guess if it’ll likely make money.
  • Green Energy: ROI helps decide if putting money into things like solar panels will save enough money over time to be worth the initial cost.5


Consider a business that spent $10,000 on a new sales funnel, including advertising, software, and content creation.

Over a period, this funnel generated $50,000 in sales. The ROI would be calculated as:

roi calculation example

This indicates a high return on investment, showing the funnel’s effectiveness.

Keep in mind that ROI may not capture long-term value or brand-building efforts.

It can be challenging to calculate in complex funnels.

Related Terms


1. Wikimedia Foundation. (2023c, November 19). Return on investment. Wikipedia.

2. Beattie, A. (2024, February 28). How to calculate return on Investment (ROI). Investopedia.

3. Friedlob, G. T., Plewa, F. J. (1996). Understanding Return on Investment. United Kingdom: Wiley.

4. Lal, B., Ismagilova, E., Dwivedi, Y. K., & Kwayu, S. (2020). Return on investment in social media marketing: Literature review and suggestions for future research. Digital and social media marketing: emerging applications and theoretical development, 3-17.

5. 13 reasons why Roi is important in marketing. Avidly. (n.d.).

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