ROI Formula
Simple ROI = (Net Profit / Total Cost) × 100
Where:
Net Profit = Final Value − Initial Investment − Additional Costs
Total Cost = Initial Investment + Additional Costs
Annualized ROI (CAGR) = [(1 + ROI/100)^(1/years) − 1] × 100
Payback Period = Total Cost / Annual Net Profit
(assumes linear returns over the time period)
Total Return = Final Value − Total Cost
ROI Benchmarks by Asset Class
| Investment Type | Typical Annual ROI |
|---|
| S&P 500 (historical avg.) | ~10% (~7% inflation-adjusted) |
| Real Estate | 8%–12% (with appreciation) |
| US Treasury Bonds | 3%–5% |
| High-Yield Savings (HYSA) | 4%–5.5% |
| Small Business | 15%–30%+ (highly variable) |
| Rental Property (cash-on-cash) | 6%–10% |
Simple ROI vs. Annualized ROI
Simple ROI measures the total percentage gain or loss regardless of how long the investment was held. Annualized ROI (CAGR — Compound Annual Growth Rate) normalizes the return to a per-year figure, making it straightforward to compare investments held for different lengths of time.
For example: a 50% ROI over 10 years equals only about 4.1% annualized — far less impressive than 50% ROI over 2 years, which annualizes to approximately 22.5% per year.
Frequently Asked Questions
What is a good ROI?+
A "good" ROI depends on the investment type and its risk level. For stocks, beating the S&P 500 historical average of ~10% per year is considered strong performance. For a business investment, 15–30% ROI is often the target. Any positive ROI is better than a loss, but you should compare it to the next-best alternative use of that capital.
What is the difference between ROI and ROE?+
ROI (Return on Investment) measures profit relative to the total cost of an investment. ROE (Return on Equity) is a corporate finance metric that measures a company's net income relative to shareholders' equity. ROI is a broader concept applicable to any investment; ROE is specific to evaluating company financial performance.
Does ROI account for inflation?+
Simple ROI does not account for inflation. To calculate a real (inflation-adjusted) ROI, subtract the annual inflation rate from your annualized ROI. For instance, a 7% annualized ROI with 3% annual inflation yields a real return of approximately 4% per year in purchasing power.
How do I calculate ROI for a rental property?+
Enter your total purchase plus renovation costs as the initial investment, and the current market value plus cumulative net rental income as the final value. Add ongoing costs such as property management fees, repairs, taxes, and insurance as additional costs for a more accurate picture of your actual return.
What is payback period?+
The payback period is the amount of time it takes to recoup your initial investment from net profits. A shorter payback period generally indicates a more attractive investment. This calculator estimates payback assuming returns are evenly distributed across the holding period. Enter the time period in years for this result to appear.