Return on Investment (ROI) is the most universal metric in business and investing. It tells you how much you gained (or lost) relative to what you put in. Whether you're evaluating a stock, a marketing campaign, a business idea, or a home renovation, ROI gives you a single comparable number.
Result expressed as a percentage — positive means profit, negative means loss
You invest $5,000 in stocks. After one year, your investment is worth $6,500.
ROI = ((6500 − 5000) ÷ 5000) × 100 = 30% ROI
| Investment Type | Typical Annual ROI | Notes |
|---|---|---|
| Stock market (index fund) | 7–10% | Historical average, varies year to year |
| Real estate | 8–12% | Includes rental income and appreciation |
| Savings account | 3–5% | Low risk, liquid |
| Business investment | 15–30%+ | Higher risk, higher potential |
| Marketing campaigns | 200–500% | Good digital campaigns return $3–5 per $1 spent |
ROI is simple but has limitations. It doesn't account for time — a 50% ROI over 10 years is much less impressive than 50% ROI in one year. For time-sensitive comparisons, use annualised ROI or IRR (Internal Rate of Return).
Any negative ROI means you lost money. An ROI below the risk-free rate (e.g., savings account rate) means you took on risk without adequate reward. Generally, equity investments should return more than 7% annually to justify the risk over safer alternatives.
Include all costs (purchase price, maintenance, taxes, management fees) and all income (rent, appreciation). Annual ROI = (Annual net income ÷ Total investment) × 100.