How to Calculate ROI: The Formula, Marketing ROI and Annualised ROI

CFI describes return on investment as a ratio that measures the benefit you get relative to the cost of the investment, most commonly net income divided by the original capital cost. The higher the ratio, the bigger the benefit. It gives two common versions: net income divided by cost of investment, or investment gain divided by investment base. CFI's advice is worth remembering: when someone tells you an ROI is good or bad, ask exactly how they measured it.

The return on investment formula, with worked examples

These are the versions you'll meet most often, each with the source's own example. The dollar figures are the sources' examples as of October 2026.

Version	Formula	Worked example
Investment gain (CFI)	(Gain - Cost) / Cost	Property bought for $500,000, sold for $1,000,000 = 100%
Excel version (CFI)	(Final value - Initial investment) / Initial investment x 100%	$1,000 grows to $1,250 = 25%
Marketing ROI (Shopify)	(Sales growth - Marketing cost) / Marketing cost x 100	$10,000 spend, $50,000 sales growth = 400%
Campaign ROI (Shopify)	(Attributed revenue - Campaign cost) / Campaign cost x 100	Email costing $5,000, $20,000 attributed = 300%
Annualised ROI (CFI)	(Ending value / Beginning value) ^ (1 / years) - 1	$12.50 to $15.20 = 21.6% regular, 35.5% annualised

If you're doing this in a spreadsheet, the Excel version is the one to copy, and this guide to calculating percentages in Excel covers the formatting.

How to calculate ROI step by step

1. Decide the gain you're measuring. Profit, sales growth, or the sale price minus the purchase price.
2. Add every cost, including fees, maintenance and tax.
3. Subtract the cost from the gain and divide the result by the cost.
4. Multiply by 100 to turn it into a percentage.
5. Annualise it if you're comparing options held for different lengths of time.

Using CFI's property example: (1,000,000 - 500,000) / 500,000 = 1, which is 100%. The property doubled, so the return equals the original cost.

The catch: one number, three decisions

ROI looks like a single figure, but it hides three choices: what counts as the gain, what counts as the cost and over what time. CFI names two limitations that come from this.

ROI ignores time. Two investments can both show a 50% ROI, but one takes three years and the other five. CFI puts it bluntly: a return of 25% over five years reads the same as 25% over five days.

ROI can be bent. It varies depending on which costs a person leaves out, such as maintenance, property taxes, sales fees, stamp duties and legal costs. CFI says to use the true ROI that accounts for all costs.

Borrowing changes the picture too. In CFI's example, a $200,000 property sells for $220,000 a year later, a $20,000 profit. Paid in cash, the ROI is 20,000 / 200,000 = 10%. With 80% financing you put in $40,000 and borrow $160,000, so the ROI is 20,000 / 40,000 = 50%. Same profit, very different ROI, and CFI notes that interest and fees cut the net return and that borrowing magnifies losses as well as gains.

Annualised ROI: how to compare different time periods

CFI's fix for the time problem is annualised ROI: ((ending value / beginning value) ^ (1 / number of years)) - 1, where the number of years is the days held divided by 365.

Its example is a stock bought on 1 January 2017 for $12.50 and sold on 24 August 2017 for $15.20. The regular ROI is (15.20 - 12.50) / 12.50 = 21.6%. Because it was held for less than a year, the annualised figure is 35.5%. That's the number to use when you set it against something you held for longer.

Marketing ROI and campaign ROI

Shopify's marketing ROI formula is (growth in sales - marketing costs) / marketing costs x 100. Put $10,000 into a campaign, see sales rise by $50,000, and the ROI is (50,000 - 10,000) / 10,000 x 100 = 400%. That's $4 back for every $1 spent.

For campaign ROI, Shopify splits $50,000 of revenue 60/40 between two campaigns. The email campaign cost $5,000 and has $20,000 attributed to it, so (20,000 - 5,000) / 5,000 x 100 = 300%. The social campaign cost $10,000 with $30,000 attributed, so (30,000 - 10,000) / 10,000 = 2: it returned twice what it cost. The email campaign brought in less revenue but the better return, which is exactly what campaign ROI is there to show.

Why marketing ROI is hard to measure

Shopify gives three reasons. Attribution is messy when a buyer touches several channels. Slow channels such as SEO and content may take six to nine months to rank: spend $10,000 in January, see $50,000 of revenue by December, and the early months make the ROI look negligible. And some effects, such as brand perception, are hard to put a number on. Its advice is to track interim metrics like rankings and organic traffic first. This guide to measuring ROI for an SEO strategy covers that in detail.

CFI also says there's no universal benchmark for a good ROI. An 8% return might beat expectations in fixed income but underperform in a high-growth business venture. When plain ROI is too blunt, CFI points to IRR, which accounts for the timing of every cash flow, and to return on equity and return on assets, whose denominators are more clearly defined.

Where I come in

I work with SaaS marketing teams and small businesses on judging marketing spend: agreeing what counts as the gain, what goes into the cost and which interim metrics to watch while a slower channel builds. You can see how I work on my work with me page.

My verdict on calculating ROI

ROI is easy to calculate and easy to bend. Say what you counted, include every cost and compare options over the same time period, annualising if you have to. For marketing, don't judge a slow channel in month two. Watch the leading numbers first, then run the ROI when the revenue has had time to arrive.

Frequently asked questions

What is the formula for ROI?

ROI = (gain - cost) / cost x 100. CFI also gives it as net income divided by the cost of investment.

How do you calculate marketing ROI?

Shopify's formula is (growth in sales - marketing costs) / marketing costs x 100. A $10,000 campaign that lifts sales by $50,000 gives 400%.

What is annualised ROI?

It converts a return into a yearly rate so you can compare investments held for different lengths of time: (ending value / beginning value) ^ (1 / years) - 1.

What is a good ROI?

CFI says there's no universal benchmark. It depends on your objective, the asset type, the holding period and your risk tolerance.