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How to Calculate ROI to Justify a Project

• 12 May 2020

Understanding how to calculate the potential return on investment (ROI) of a project is an essential financial skill for all professionals to develop.

If you’re an employee, knowing how to calculate ROI can help you make the case for a project you’re interested in pursuing and have taken the lead on proposing. If you’re a manager, understanding ROI can give you greater insight into your team's performance . If you’re an executive, working knowledge of ROI can make it easier for you to identify which projects should be greenlit and which should be passed over. Once ROI is proven, it may be possible to replicate success by applying lessons learned from the first project to other segments of the business.

If you’re unfamiliar with accounting and finance , the prospect of determining the ROI of a project may seem beyond your abilities. However, it’s not an overly complicated process. By understanding the basics of financial valuation, which can enable you to put a monetary value on companies, projects, or anything that produces cash flows, anyone can learn to calculate the ROI of a project.

Access your resource today.

What Is Return on Investment?

Return on investment (ROI) is a metric used to denote how much profit has been generated from an investment that’s been made. In the case of a business, return on investment comes in two primary forms, depending on when it’s calculated: anticipated ROI and actual ROI.

Anticipated vs. Actual ROI

Anticipated ROI , or expected ROI, is calculated before a project kicks off, and is often used to determine if that project makes sense to pursue. Anticipated ROI uses estimated costs, revenues, and other assumptions to determine how much profit a project is likely to generate.

Often, this figure will be run under a number of different scenarios to determine the range of possible outcomes. These numbers are then used to understand risk and, ultimately, decide whether an initiative should move forward.

Actual ROI is the true return on investment generated from a project. This number is typically calculated after a project has concluded, and uses final costs and revenues to determine how much profit a project produced compared to what was estimated.

Positive vs. Negative ROI

When a project yields a positive return on investment , it can be considered profitable, because it yielded more in revenue than it cost to pursue. If, on the other hand, the project yields a negative return on investment , it means the project cost more to pursue than it generated in revenue. If the project breaks even, then it means the total revenue generated by the project matched the expenses.

Return on Investment Formula

Return on investment is typically calculated by taking the actual or estimated income from a project and subtracting the actual or estimated costs. That number is the total profit that a project has generated, or is expected to generate. That number is then divided by the costs.

The formula for ROI is typically written as:

ROI = (Net Profit / Cost of Investment) x 100

In project management, the formula is written similarly, but with slightly different terms:

ROI = [(Financial Value - Project Cost) / Project Cost] x 100

Check out our video on return on investment below, and subscribe to our YouTube channel for more explainer content!

Calculating the ROI of a Project: An Example

Imagine that you have the opportunity to purchase 1,000 bars of chocolate for $2 apiece. You would then sell the chocolate to a grocery store for $3 per piece. In addition to the cost of purchasing the chocolate, you need to pay $100 in transportation costs.

To decide whether this would be profitable, you would first tally your total expenses and your total expected revenues.

Expected Revenues = 1,000 x $3 = $3,000

Total Expenses = (1,000 x $2) + $100 = $2,100

You would then subtract the expenses from your expected revenue to determine the net profit.

Net Profit = $3,000 - $2,100 = $900

To calculate the expected return on investment, you would divide the net profit by the cost of the investment, and multiply that number by 100.

ROI = ($900 / $2,100) x 100 = 42.9%

By running this calculation, you can see the project will yield a positive return on investment, so long as factors remain as predicted. Therefore, it’s a sound financial decision. If the endeavor yielded a negative ROI, or an ROI that was so low it didn’t justify the amount of work involved, you would know to avoid it moving forward.

It’s important to note that this example calculates an anticipated ROI for your project. If any of the factors affecting expenses or revenue were to change during implementation, your actual ROI could be different.

For example, imagine that you have already purchased your chocolate bars for the agreed-upon $2 apiece and paid $100 to transport them. If the most that the store will pay you is $2.25 per chocolate bar, then your actual revenues drop substantially compared to your projected revenues. The result is a reduced net profit and a reduced actual ROI.

Actual Revenues = 1,000 x $2.25 = $2,250

Net Profit = $2,250 - $2,100 = $150

ROI = ($150 / $2,100) x 100 = 7.14%

Circumstances are rarely as straightforward as this example. There are typically additional costs that should be accounted for, such as overhead and taxes. In addition, there’s always the possibility that an anticipated ROI will not be met due to unforeseen circumstances, but the same general principles hold true.

How to Use Finance to Pitch Your Project

Have you ever pitched a project to senior management, only to have the idea shot down under the guise of “not making financial sense?" It happens more often than you might think. By learning how to calculate ROI for projects you’re interested in pursuing, you can self-evaluate them before they're raised up to decision-makers within your organization and defend them as they’re being considered.

Similarly, by understanding how to calculate ROI after a project you’ve spearhead is done, you can better speak to the contributions that you and your team have made toward shared company goals.

High-performing businesses are successful because they make smart decisions about when and where they allocate available resources. Calculating the ROI of a project before it moves forward can help ensure that you’re making the best possible use of the resources you have available.

To learn more ways that you can use financial concepts to improve your efficacy and advance your career, explore our online finance and accounting courses and download our free flowchart to determine which is right for you. Do you want to build your financial fluency? Download our free Financial Terms Cheat Sheet .

About the Author

ROI Templates and Calculators For Many Disciplines

By Andy Marker | October 11, 2018

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In this guide, you will learn about the role of ROI, its formula, why you would use it, the four methods to easily calculate it, and additional methods to break down work. Download the essential Excel templates to perform a variety of ROI tasks, including content marketing metrics, website ROI analysis, healthcare quality initiative ROI, event ROI calculator, PLM ROI calculator, IT ROI, cost avoidance calculator, and TCO ROI.

Cash Flow ROI and Template

Cash Flow ROI (CFROI) is a proxy for a company’s economic return. This return is compared to the interest rate charged to commercial banks from the Federal Reserve’s standard (the discount rate), to see if there is value-added potential. CFROI is the average economic return in a year on all of a company’s investments. Enter your variables in this template to determine your company’s CFROI.

‌ Download Cash Flow ROI and Template - Excel

In this template, you will enter the following variables:

Cost Fixed Assets : These are assets not expected to be used up or converted into cash within a year. They can include property, plant, and equipment (PPE), and may be used to generate income.

Cost Non-cash Working Capital : The sum of inventory and receivables

Cost Capitalized Operating Leases : Posted as an asset on the balance sheet, this type of lease expenses the lease payments.

Cost Accumulated Depreciation on Assets : An asset account with a credit balance.

Years Average Life of Assets : The accumulated depreciation divided by the current depreciation expense.

Percent Inflation Rate During Asset Life (Annual) : The change in purchasing power.

Years Remaining Life of Assets : This is calculated based on when the asset went into service and the preferred depreciation method.

Percent Salvage Value at End of Life : The resale value at the end of the asset’s useful life.

Cost Current Earnings Before Interest and Taxes (EBIT) : All incomes and expenses, except interest and income tax expenses.

Cost Current Depreciation : The deduction that helps spread the cost over many years.

Percent Marginal Tax Rate : The tax percent of your income based on your tax bracket.

Percent Nominal Cost of Capital : The rate of return needed to persuade your company to make a given investment.

Below are the outputs from these inputs:

Adjusted gross investment (for inflation)

Gross cash flow

Expected salvage value

Years remaining asset life

Cash flow return on investment (CFROI)

Cash flows per investment year

NPV and IRR Calculations and Template

Net present value (NPV) and internal rate of return (IRR) are metrics used to estimate ROI. NPV is the dollar difference between the present value of cash inflows and outflows over time. Companies use NPV as a tool to help them decide if an investment will provide long-term value, to compare different investment options, and to decide whether they should introduce a new product. IRR is the calculation that estimates the percent profitability of possible investments by taking the NPV equal to zero.

NPV looks at each cash flow separately, even when the discount rate is unknown. An NPV greater than zero makes a project financially worthwhile. IRR compares projects using one discount rate, predictable cash flows, equal risk, and a shorter time. IRR does not account for changes in the discount rate, which at times makes it a poor metric. Further, if there are a mix of positive and negative cash flows, IRR calculations are not effective. To calculate your company’s NPV and IRR, use this template.

‌ Download NPV and IRR Calculations and Template - Excel

In this template, you will input the following:

Discount rate

Series payment type (None, Uniform, Gradient, or Exp Grad)

Value (A, G, or Eo)

G % for Exp Grad

The number of periods

For each period, the values

Below are the outputs for this template:

The sum for each period

The different series for each period

NPV for each series

NPV for each label

IRR for each label

Cost Avoidance Calculator Template

Preparing for a conference or large event is a big commitment for a business. There are direct costs, such as airfare, registration, and accommodations, and indirect costs such as the hours of preparation. Cost avoidance includes actions or event-substitutions that reduce future costs, such as planning virtual conferences, trainings, or parts replacement before failure (and subsequent damage to other parts). Cost avoidance activities may incur higher immediate costs but save money — sometimes totaling extreme savings — over time. This is a different concept from cost savings , in which you actually save the money you plan on spending. Lower spending, investment, or debt levels is what saves money.

Use this template to calculate cost avoidance as ROI. This calculator has a variety of event scenarios, including training, conference, and an in-person event. These costs are compared to a virtual briefing, a virtual conference, and a virtual large event, respectively. With your input, you can calculate the costs per participant for each, the cost avoidance factor per participant, and the avoidance factor.

‌ Download Cost Avoidance Calculator - Excel

Marketing ROI and Content Marketing Templates

Marketing is a huge expense for any business. Whether your company invests in a comprehensive program that rolls out print and television ads as well as a social media presence, or just has a Facebook page, you should know the worth of your content over time. Sirius Decisions stated in 2013 that 60 to 70 percent of content goes unused. The cost of creation itself involves the per hour cost of each person by the number of creation hours involved, plus any actual content expenses. Having the ROI for marketing content can help motivate your staff to use it.

The marketing ROI (MROI) is simply the revenue generated from your content minus the cost to produce your content. This is a simple calculation, but some professionals caution that marketing professionals should define how and what they have measured in order to signal to stakeholders whether they are defining short-term channel-specific ROI or informing for long-term budget or strategic decisions. In this marketing ROI  template, you will find space for multiple marketing initiatives in order to compare their relative value.

‌ Download Marketing ROI Template - Excel

To use this template, input the following:

Total initiative cost

Total circulation/audience

Response rate (percent of generated leads by the audience)

Conversion rate (percent of leads which will purchase)

Average revenue per sale

Average profit per sale

From these inputs, you will get these outputs:

Total costs of all initiatives

Total cost/audience for all initiatives

Average profit per sale for all initiatives

Number of leads generated

Number of sales

Total revenue uplift

Total profit uplift

ROI percent

Cost per lead

Cost per sale

Break even response rate

Break even conversion rate

Break even profit per sale

The demand for marketing measurement and reporting is rising with marketing costs. There are many metrics that should be reported to show the success of your marketing program. Many professionals are not comfortable communicating their impact on the bottom line metrics to get the support they need. The key metrics that every marketing person should be comfortable reporting include the following:

Total Reach : The number of people your company can reach across your different networks and platforms. Each is a potential client.

Reach by Channel : The number of people following or subscribed per channel.

Total Website Visits : The number of people who visited your website in a period of time. This metric shows how well your inbound marketing is directing people to your website, which is also tracked month over month (MoM).

Website Visits by Source : This metric reports where people are coming to your website from to determine how well specific campaigns are working.

Total Leads Generated : This metric shows the interest your campaign generates for the products or services. It is one of the strongest ROI indicators.

Leads Generated by Source : This metric shows the channels that produce the most leads, which allows you to focus on the most valuable sources. 

Total Customers Driven by Marketing : This metric tracks which marketing campaigns are yielding the most customers.

Marketing Generated Customers by Source : Track the source of the customers acquired by each campaign. 

Conversion Rates

Visit to Lead Conversion Rat e: This measures the percent of people whose website visit becomes a new lead for sales.

Lead to Customer Conversion Rate : This measures the percent of people moving from leads to customers. This metric helps determine if your campaigns are generating sales-ready leads.

Visit to Customer Conversion Rat e: This is the overall funnel: whether your traffic generated turns into customers.

Content Marketing Metrics Template

Use each of the above five categories to record metrics for reporting with this template. It provides a space for each metric and ready-made graphs to add to your marketing deck so you can present your success. Fill out the reach, visits, leads, and customers templates, and your conversion rates template will automatically fill from your data.

Download Content Marketing Metrics Template

Excel  | Smartsheet

Website ROI Analyses and Template

Google Analytics 4 (GA4) can help you determine the financial value of your content so you can calculate ROI. Use GA4 to track the URLs from all your web materials, such as your website, Facebook, newsletters, and any other sources. You can track who comes to your site and the path they took to get there. For example, you can get a count of how many times someone accessed your site from a Facebook post, or how many times your content was downloaded from your site.

To set up Google Analytics 4, start by either signing in or creating an Analytics account. Set up your GA4 property, add a data stream and install your Google Analytics with Google Tag Manager. Here’s how to set up Google Analytics 4:

Create an Analytics account, unless you already have one.

Create a Google Analytics 4 Property:

Go to the Admin section of your Google Analytics 4 interface and then click Create Property .

Enter the name of your property, choose your company’s country, reporting time zone, and the main currency your business operates.

Press Next , and answer several questions. 

Then select your business objectives.

Click Create .

Configure your first Data Stream: 

In Admin , in the desired Property column, click Data Streams > Add stream . 

Click iOS app , Android app , or Web . In this article we focus on the Web stream.

For the Web , enter the URL of your website (the protocol https is already selected) and enter the name of your website.

You have the option to enable or disable Enhanced Measurement feature. By default it is enabled, but you can disable it if you want. 

Press the Create Stream button.

Install Google Analytics 4 with Google Tag Manager (GTM):

Install GTM on your site.

After that, go to GA4 > Admin > Data Streams , select your Web data stream, and copy the Measurement ID .

Go to your Google Tag Manager container > Tags > New and choose Google Analytics: GA4 Configuration .

In the Measurement ID field, enter the Measurement ID you copied in the GA4 interface.

In the Triggering section, select Initialization – All Pages .

Name the tag and save it.

Test the GA4 installation:

Click Preview in the top right corner of the GTM interface.

Once you enable the preview mode, you should see the new GA4 tag among the tags that fired. If your tag didn't fire, check your tag's trigger settings.

Publish your changes in GTM by clicking the Submit button in the top right corner and then completing all the other steps that the user interface asks you to do.

Website ROI Calculator Template

You can add Goals in your analytics page to determine how well your pages are performing. Import the information from your website or app into this website ROI calculator to determine the ROI for your web-based traffic. You’ll find a full website campaign overview in a roll-up sheet, which tells you which campaigns are the most successful so you can compare them.

‌ Download Website ROI Calculator - Excel

In this calculator template, you will find spreadsheets for each of your campaigns. The inputs for each campaign are as follows:

Date figures updated

Name of staff updating

ROI goal (percent)

ROI goal (days)

Site launch date

Number of unique visitors

Net number of unique visitors

Number pageviews

Development costs

Concept development

Operation, support, hosting

Internal resources

Other costs

Marketing costs

Calls to action and revenue

From these inputs, the following are your outputs:

Days site ran

Average pageviews (pages per visitor)

Total development and operations cost

Total marketing cost

Total development operations and marketing

Total revenue

ROI percent (greater than 0 percent is a profit)

Revenue/costs (percent investment returned)

Days to break even (at the current rate of activity)

Days to reach ROI goal (at current rate)

Prognosis: ROI based on the time period listed and the current rate

Another way to figure out the revenue from your web content is to look at your online sales. Each time you sell products on your website, you can use your digital content to push customers to your sales pages. Each time you post a blog article, there should be links your customers can follow to reach your products. From these page visits, look at the revenue earned over the period and the number of visits from your content.

There are other programs you can use to manage your social media and marketing content that you can purchase as well. Some of these plug into your existing software to make your reporting easier. It’s worth reviewing their features and ease of use for your company if your revenue is dependent on your social marketing content. Some of these apps include Hootsuite, Hubspot, Buzzsumo, and Quintly.

Healthcare Quality Initiative ROI Templates

With the cost of health care skyrocketing, state-sponsored and private health plans should be able to prove their ROI to measure the effect of their quality improvement initiatives. These seven worksheets can help you prove the ROI of your quality improvement initiative:

Initial Costs : In this template, the costs of the personnel involved in the initiative are laid out, as well as any additional costs such as supplies, contracted services, and equipment. The total costs of the initial investment are calculated. This is Year 1 costs.

Operating Costs : This spreadsheet template pulls data from your initial costs spreadsheet for Year 1 and allows you to add data for consecutive years of your initiative. You can add and adjust for additional staff and known costs, and then the worksheet calculates the total costs for each year.

Claims-Intervention : Data from claims is used to estimate savings per year. Inputs for this spreadsheet include the actual payments from each claim category and the estimated savings by claim category for each year, the monthly membership for the initiative, and the number of months in the year the initiative was operational.

Claims-Control : Data from a control group of claims (without the intervention) shows a difference in the intervention versus changes that are an artifact of other reasons. It is important to maintain a control group to show that improvements come from your initiative and not from other or natural progressions.

Claims-Incremental : This spreadsheet compiles data from your claims-control and claims-intervention spreadsheets to determine your savings, and whether these savings are relevant to your quality initiative.

ROI : This spreadsheet automatically compiles data from your other spreadsheets and calculates the total discounted annual investment costs, the total discounted annual savings, and the ROI summary, which includes undiscounted annual net cash flows, cumulative ROI, net present value, and internal rate of return.

ROI-Incremental : Like the ROI spreadsheet, this template calculates the savings and ROI summary, but for incremental data.

‌   Download Healthcare Quality Initiative ROI Templates

Project ROI Templates

There are many projects that require you to calculate ROI. Some of these may be due to technology or software system changes that can get extremely expensive, so being able to report ROI to your stakeholders becomes critical.

IT ROI Calculator Template

The following is an IT ROI calculator for any basic IT initiative or project. This calculator provides columns to include data for up to eight years, but you can add more years as columns. Inputs include the following:

Cost savings by year

Selection costs

Implementation costs

Ongoing costs

Project discount rates

The outputs from this include subtotals of each, cash flow, cumulative cash flow, and results. The results include the following:

Total project cost savings/income

Total project expenditures

Net project savings/income

ROI (after five years)

Net present value (NPV)

Internal rate of return (IRR)

Payback (breakeven) year

For ease of reporting, charts have been included that automatically show yearly project cash flows, overall project implementation analysis, and overall project cost savings/income analysis.

‌ Download IT ROI Calculator

ROI Calculator for Product Lifecycle Management (PLM) Systems

Another software ROI calculator is for product lifecycle management (PLM) systems. Inputs for this calculator include the following:

Organization total revenue

Three-year total investment

Cost of capital

Direct cost of goods

Direct cost of goods benefit

Current operating margin

Current new product revenues

New product growth

Total research and development cost

Product development savings

Scrap reduction

Total inventory cost

Total labor cost

ECO labor cost/annum reduction

Percent total investment per year

Outputs from this calculator include the following:

Investment amounts

Part standardization benefit

TTM and collaboration

PDM savings

ECO reduction savings

Rework savings

Net cash flows

Use the diagram that visually shows the NPV of cumulative cash flow to update your stakeholders.

‌ Download ROI Calculator for Product Lifecycle Management (PLM) Systems

Business Case and Event ROI Template

Building a business case helps your team or company justify the funding in any proposal. This is the expected benefit from any undertaking, whether you are making a case for replacing old equipment or starting a fresh marketing program. Using ROI and other cash flow metrics are an excellent method to help you build your business case — especially in the case of technology investments where financial managers can identify expected costs and benefits to calculate ROI. For example, you may want to make a business case for an event your company is considering hosting. Based on the ROI of past events, you can give your company information on what level of event is relevant for their goals. For example, you can make a case for a large formal event rather than a small less-costly cocktail party if the ROIs are markedly different, and the large event generates more customers. Use this simple event ROI calculator template to discover what ROI your past events yielded by inputting the number of attendees, costs, and deal information. The outputs then give the event cost per person, the ROI, and the ROI percent.

‌ Download Business Case and Event ROI Template - Excel

Justification and Total Cost of Ownership ROI Template

In the same vein as proving a business case, a business plan must have some type of economic justification to provide stakeholders with the knowledge that they are making sound policy and finance decisions.  ROI is an appropriate choice, although it does not consider the intangible or fuzzy costs and the benefits that a cost-benefit analysis (CBA) might reveal. However, since those measures are fuzzy, they may not accurately represent the data anyway.

Total cost of ownership (TCO) helps assess costs across an enterprise for products or systems. Mainly used in IT, TCO generally includes not only the hardware and software, but the acquisition, management, support, expenses, training, and any other productivity losses to be expected during implementation. This calculation is made using data over a number of years, so you can present the TCO lifecycle. TCOs can be used to comprehensively justify new software purchases — especially since they are generally such expensive prospects. TCO is the negative data in an ROI equation that shows what you are spending.

Additionally, many professionals interested in TCO also want cost avoidance data, or the positive data in an ROI equation. For example, with both TCO and cost avoidance, you can calculate the ROI of replacing a software system that performs some function that saves you money.

Use this template for such a scenario, where the TCO of a software system (such as a virtual briefing platform) and the cost avoidance of a virtual briefing are combined to discover ROI. You can also use the template independently to determine either TCO or cost avoidance. In this template, you will find space to input your direct and indirect costs across several years. Inputs include costs for the following: 

Implementation

Programmatic work

There is also space to enter cost avoidance data. The following are calculated from the input data:

Total cost of ownership/year

Total substitution cost avoidance

Total potential cost avoidance

Potential ROI

Potential ROI percent

Potential ROI/year

‌ Download Justification and Total Cost of Ownership ROI- Template – Excel

Simple ROI Templates

An ROI analysis can vary in the levels of its complexity. Regardless of the amount of data, the basic ROI formula details three steps:

Estimate the Cost : Costs may be hard or soft, depending on the project or event planned. Hard costs are simple and are anything that comes with a receipt, such as travel costs, registration fees, and entertaining costs. Each of these can be a line item when you build or use an ROI calculator. Soft costs are more complex since they can include the number of hours spent on preparing, attending, and following-up after the event. This can also include the time spent corresponding, researching, and traveling. Multiply these “soft” hours by the employees’ hourly rate from their base pay to calculate the soft cost. Combine the hard and soft costs for a  better representation of the cost estimate.

Estimate the Return : First, define your success metric. For a conference-type event, this may vary, but consider the type of event and your company’s function in the marketplace. Your team should help you define your success metrics. Defining success metrics is part art, part science. If the metrics are developed, they should align with your strategic plan and your key performance indicators (KPIs) .

Compute ROI : Calculate ROI by dividing the activity return by its cost. Below is another formula you may follow:

ROI = (Gain from investment – Cost of investment) / (Cost of investment)

Simple ROI Calculator Excel Template

The attached simple ROI calculator is an Excel template. ROI may be calculated in Excel, but there is no specific formula for it — it simply displays inputs and outputs to help you come up with the final number. In this template, you will find four different methods to calculate ROI. But, you will always need to enter either your original investment value or share price.

Download Simple ROI Calculator Template

The four methods in the above template include net income method, capital gain method, total return method, and the annualized method: Net Income Method: Divide net profit by total assets. Enter your original investment value and its net income, which is what was earned less the taxes and deductions.

Capital Gain Method : Subtract your cost base from your capital proceeds. Enter your original share price and the current share price.

Total Return Method : The actual rate of return on an investment over a period of time, including capital gains, interest, and any dividends. Enter the original share price, your dividends, and the current share price.

Annualized Method: This is the geometric average amount earned every year over a given time. It is geometric to show compounding. Enter the original share price, the sale share price, when you purchased the share(s), and when you sold them.

What Is a Return on Investment (ROI)?

Companies use ROI to gauge the profits from any type of investment, whether time, money, or energy. Return on investment (ROI) is a performance measure that can be calculated in simple cases through a formula or in more complex cases via a template with multiple formulas. Calculations occur when you input what is spent versus what is earned. It can also be an investment view of a company’s cash flow via an action they took. In other words, the benefit of an investment is divided by the cost to see if it was worth making. ROI has many interpretations, depending on the business industry. For many businesses, ROI is simply the measurement of financial gain or loss relative to the costs such as deductions, fees, labor, or resources.

In project management, ROI helps businesses determine whether they want to invest in specific projects, and in the case of several projects, to decide between them. In the case of long-term projects, businesses must take into account inflation and future income to accurately calculate ROI. In the case of some quality projects, the ROI may be difficult to calculate because it’s hard to turn non-quantifiable data such as ideas and good feelings into monetary values. For example, spending money to put in a new breakroom may make your employees happier and feel more positive towards their environment. However, it’s difficult to calculate the revenue of a new break room.

ROI is used as a concept and a specific formula. As a concept, it can measure profitability or efficiency. People refer to ROI when discussing what they get back for their input. However, ROI is a true metric that can be calculated as a ratio or percentage. The basic formula to calculate ROI is:

ROI = Net Profit / Total Investment *100

You would use ROI for several reasons:

Provide Quantifiable Value : ROI provides leaders with information about a project’s worth, and can help garner their support by removing uncertainty and subjective benefits.

Build Stakeholder Support : When a project is up for decision (whether or not it gets approved), calculating the ROI gives stakeholders the information they need to either provide or deny their support.

Show Additional Benefits : Calculating ROI becomes a forcing function for staff to determine benefits they may not have considered at the start of a project.

Prioritize Projects : Many companies use ROI as a metric to rank their projects.

However, ROI modeling has some limitations. Some models do not adequately factor in accurate-enough costs and returns. Soft, or intangible, costs are difficult to assess. Another issue is that the costs and returns of a project may not match predictions. Finally, some ROI models may not give more than a financial measure of a project, giving stakeholders an inadequate measure of return or making the project’s actual return misunderstood.

There is more than one way to model ROI, and different analysts can model differently, possibly mischaracterizing the outcome. Therefore, stakeholders and business leaders should ask not only the ROI of a project but how it was modeled. The effects that a project has on more than just the business are sometimes left out. For example, social return on investment (SROI) is a modern metric that considers social, economic, and environmental outcomes in projects. SROI uses impact mapping, which is a strategic planning technique.

The ROI Formula

ROI is calculated by subtracting the project cost from the financial value. Financial value is what the project pays you back, but occasionally there is uncertainty in assigning monetary values to outcomes. To do so, break the values into known components and define them. These components usually include time, volume, and dollars for both the present and the project, such as this formula:

Financial value = TVD present – TVD project

V = volume, quantity of units

D = dollars/cost

Present = the current value

Project = the value of a successful project

One example of using this formula considers a project that decreases the production cycle by 20 percent. The team calculated that the production cost of their product was $5,000. The time to produce one unit was 10 hours, with a $90/hour wage and $41,00 worth of materials. For the production of 500 of these units, the product line cost was $2.5 million.

The project decreased the production cycle time by 20 percent, from 10 hours to eight hours, while keeping the remaining costs the same. The new production cost is $4,820 per unit and $2.41 million for the yearly product line. Therefore, using the formula above, the project's financial value is:

Financial value = $2,500,000 - $2,410,000 = $90,000 in annual savings

The project cost is the second component of the ROI formula. There are two main variables that compose project cost: work decomposition over time and cost of the work. The work decomposition over time breaks down the work or tasks into the most granular level possible, and in best practice by chronological order. In project management, this may also be known as the work breakdown structure (WBS). Here’s an example:

Insert Chart Here

For more information about WBS, see “ Getting Started with Work Breakdown Structures (WBS) .”

The costs of the required work need the practitioner to consider certain factors when they allot costs. Even these factors they can vary widely, they can include the following:

Any rentals/leases

Resources, such as workers

Hours to complete the work

Capital costs (hardware/software)

Once you have these costs defined, you can add them to your WBS, such as in the following example:

Some other methods of breaking down work include the following:

Gantt Charts : These are the WBS over time, and put your tasks into phases of work. To create your own, see “ How to Create a Gantt Chart in Excel .”

Process Maps or Process Flow Diagrams : These show the project work as workflow steps. This is a visual representation of your work. For more information on process maps, see “ Essential Guide to Business Process Mapping .”

These are all helpful tools to cost out your projects, but practitioners should also consider the following:

One-time Costs Versus Costs Over Time : Some equipment may be a one-time purchase or a rental over years. Include those costs over the period to get accurate ROI figures.

Consider What the Opportunity Cost May Be : When you have more than one project to compare, there may be savings you can attribute back to your company. Remember that the opportunity to perform the project may have value.

Estimate Liberally : Whenever there is a gray area for cost estimation, estimate higher. Cost overruns delay projects and erode confidence.

Once you have calculated all the financial values and project costs, the ROI formula is simple. Let’s assume in the following example that there is a one-time cost of $400,000 for our project to decrease the production time by 20 percent. In this example, Year 5 breaks even, and as the company goes forward, there is an appreciable saving:

ROI and Returns-Based Analysis

Another calculation that is important in a discussion of ROI is returns-based analysis . The financial industry performs style analyses when they are trying to determine the type of investment behavior either an investor or a money manager is using. Two distinct types of styles are holdings-based and returns-based. Returns-based is more widely used by financial professionals because monthly input data is readily available. The returns-based analysis compares three to five years of a portfolio’s monthly returns to the total returns of various style-based indexes. Inferences can be made about how closely the portfolio resembles the different indexes. In other words, a fund manager or investor professes that they will invest in a certain manner. A returns-based analysis is a model that shows if they have done so. Although not directly calculating ROI, a returns-based analysis can help determine whether your investment manager is worth their cost.

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When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

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Return on Investment (ROI) and What It Means For Your Business

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Our Small Business Expert

Return on investment (ROI) is a financial ratio that calculates the level of income generated by a specific investment. Learn more about ROI, how to calculate it in your business, and why it’s so important to understand the results of your calculation.

Overview: What is return on investment (ROI)?

ROI is a financial ratio that uses net profit and the initial cost of the investment to determine how profitable your investment is. Return on investment can sometimes be confused with rate of return (ROR), but the two should not be used interchangeably, as calculating rate of return includes a specific period, while return on investment does not, considering only the initial investment and the amount earned.

To calculate ROI, you’ll need information such as the initial investment amount and access to an income statement or other documentation that provides the total amount received from the investment.

For example, your friend Gina asks you to invest in her dog obedience training business. You know a lot of dogs that need obedience training and expect Gina’s business to succeed, so you give her $5,000.

However, Gina encounters many issues with her business, and at the end of the year, you receive only $2,500 from your $5,000 investment that Gina had promised to double. How do you calculate your ROI for the investment in Gina’s business?

The ROI formula divides your returns against your initial investment. Image source: Author

Start by using the ROI formula, which is:

Returns ÷ Investment = ROI

To calculate your ROI for investing in Gina’s business, you would use the following calculation:

($2,500 - $5,000) ÷ $5,000 = -0.5 or -50%

This means that your initial return on investment in Gina’s company is a negative 50% since you lost $2,500 on your initial investment.

How to calculate return on investment (ROI) for your business

Calculating ROI can become a complicated process for large corporations. However, for small business owners, the process is simple.

For example, to calculate ROI for your initial business investment, you’ll need to know how much your initial investment was and current long-term debt totals, if any. You’ll also need to know what your after-tax income was for the year. All of this information is available from your accounting software application, from your spreadsheet, or your accounting journals.

Let’s say your long-term debt is $15,000 while your owner’s equity is $45,000. Together, they equal $60,000. Meanwhile, the total after-tax net income for your business in its first year of operation is $135,000. To calculate your return on investment for your first year, do the following calculation:

$135,000 ÷ $60,000 = 2.25 or 225% ROI

This is high. This will change from year to year, particularly as more long-term debt is added to the business or you invest more money into it.

An example of the return on investment (ROI)

To reach more customers, you invest $20,000 in a marketing campaign aimed at attracting new customers. At the end of the year, you have a total revenue of $150,000, with $75,000 determined to result directly from the campaign.

($75,000 - $20,000) ÷ $20,000 = 2.75 or 275%

This means you have an ROI of 275% for your marketing campaign.

How should you interpret your return on investment (ROI)?

ROI analysis is important, and luckily, interpreting your ROI is fairly straightforward. The higher the ROI, the more efficiently you’re using your investment to generate revenue. In the example above, we calculated ROI for the first year of business and the initial investment. Continuing to calculate ROI regularly will provide you with a much clearer picture of how your investments are performing.

Because ROI can vary widely depending on the investment type and the industry you’re in, there is no average ROI to compare your results to. Instead, compare your results to other small businesses in their first year of operations to see how your ROI compares. If you do calculate a comparison, be sure to compare your business performance against that of a similar business to get the most value from the ROI results.

ROI can be calculated for a variety of investments including marketing, real estate, and investments. Image source: Author

3 advantages of using ROI

Calculating ROI for your business offers many advantages. Let’s look at a few.

1. Easy to calculate

Learning how to calculate return on investment is easy, with just a couple of business metrics such as net profit and investment amount needed, giving you quick insight into your initial investment.

2. Results are easy to understand

The results of your ROI are simple to interpret. A positive number means you have a positive return whereas a negative number means you’ve lost money on this investment. ROI is easily understood, even by non-accountants, making the calculation results a valuable metric to use when approaching investors or loan officers.

3. Offers flexibility

ROI can be calculated for a variety of investments, or it can be calculated for your business as a whole. This allows you to see areas of your business that have benefited from a specific investment, such as an advertising campaign that increased revenue or a second location that increased sales volume.

3 disadvantages of using ROI

Although calculating ROI offers many advantages, take into consideration a few of its disadvantages.

1. Doesn’t answer all the questions

What is a good return on investment? Is it 10%, 25%, 100%, or even more? It depends on the initial investment, what kind of return you’re expecting, and how similar businesses in your industry are performing. If you use ROI to give you information on how an investment is performing, great. But don’t expect it to tell you everything you need to know about your business or even that investment.

2. Time is irrelevant

When comparing the ROI for two investments your business has made, look behind the scenes at additional information not considered when calculating ROI. One consideration is time.

For example, you have two investments that both have a 25% ROI. One investment was a one-year marketing campaign, while the other was a two-year investment in upgraded equipment. That can make a major difference when analyzing ROI results since the marketing campaign yielded a 25% ROI after one year, while the equipment upgrade produced a 25% ROI after two years.

3. Lack of accuracy

It’s difficult to calculate the ROI on a social media campaign when you’re not able to tie results directly to the campaign. The same goes for businesses that start a blog or create a new website. While these tasks can pay dividends for a business, it may be hard to directly tie them to an increased ROI.

Why is ROI important for your business?

Any time you invest money, whether it’s in a new business, updated equipment, or a targeted marketing campaign, you want to see how well that investment has performed.

Calculating ROI allows you to do just that. Not only does ROI give you information on your investments, but it can also guide you in deciding about other business investments.

While it’s important to consider additional information when calculating ROI, such as the time factor and how your ROI stacks up against other similar businesses, ROI can immediately show you how your investment has performed.

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How to Calculate Return on Investment (ROI)

Arlene Soto

1 min. read

Updated October 25, 2023

Return on investment (ROI) is a financial concept that measures the profitability of an investment.  There are several methods to determine ROI, but the most common is to divide net profit by total assets.  For instance, if your net profit is $50,000, and your total assets are $200,000, your ROI would be 25 percent. A common definition of ROI is “a profitability measure that evaluates the performance of a business by dividing net profit by net worth.”

In a small business, the uses of ROI could be to measure the performance of pricing policies, an investment in capital equipment, or an inventory investment.  When purchasing assets in a business, such as inventory or equipment, you expect to get a financial benefit from the purchase.  Return on investment is a tool to help decide between purchase alternatives that will either generate revenue or result in cost savings that benefit the net income of the business.  Investors will also look at return on investment when choosing whether to fund a business venture.

Return on investment may also be measured unconventionally, such as in terms of social responsibility or environmental and societal benefits.  This is more difficult to measure—in determining the social return on investment, the payback would need to be quantified to calculate the cost versus the benefit.  A  network of practitioners  was formed in 2006 to facilitate the evolution of calculating social return on investment.

While return on investment is a useful tool to look at profitability, calculations are complicated by other factors such as time, maintenance costs, financing costs, other investment considerations, and the overall goals of the company.  For instance, with the purchase of capital equipment, it is expected that equipment will provide a benefit to the company for several years. As such, the net income will need to be estimated for future time periods to determine the overall ROI.  Additionally, maintenance costs over the life of the equipment will reduce the overall ROI.  An accountant can assist with the formulas to determine more complex ROI calculations.

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Arlene Soto is the director of the Small Business Development Center at Tillamook Bay Community College. She is the former director the Southwestern Oregon Community College Small Business Development Center Director. She is responsible for outreach to Coos, Curry and Western Douglas Counties in Oregon to provide small business development services through free, confidential business advising and low-cost training programs. Arlene has been working with businesses in the accounting field since 1976 and in management since 1988. She is a Certified Management Accountant and a NASBITE Certified Global Business Professional with a Master’s degree in Management from Marylhurst University and a Bachelor’s degree in accounting from Portland State University.

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How to Calculate Business ROI [+ Free Excel Template Download]

• December 19, 2023

Brent Walrath

With the end of the year approaching, many company leaders look to gauge their overall success and plan for the next year. A key component to calculating overall success is determining your business ROI .

But what is ROI and why is it an important metric of success? 

In this post, we discuss:

• What is ROI in business
• How to calculate ROI in a business?
• What is a good ROI for business?
• Walking through EBQ’s business investment return calculator

Benefits of using ROI

Limitations of using roi.

Download the ROI Excel Template

Access our ROI calculator to start accurately calculating and projecting your workplace return on investment.

What is ROI in Business?

In business, ROI (return on investment) is a percentage metric that calculates how much profit you’ve made against the investments you’ve made. 

Given how simple this metric is, many business leaders like to use this KPI to determine how much they’ve grown over a given period — often a year.

However, calculating ROI is not just used for determining the entire year’s worth of the company. Other areas of application include:

• Assessing the success of your financial investment (e.g. stocks and bonds)
• Defending the cost of investing in a new solution
• Determining each department’s output against

This means that ROI is a universally accepted measure of growth in the business world.

The ROI Formula

To calculate your return on investment, you need two figures:

• Your net profit (which is taking your overall profit and taking away the costs)
• Your costs *

*Note: There are many costs associated with calculating ROI. We’ll discuss known and hidden costs you’ll need to consider when calculating your return on investment.

From there, plug in this formula to determine your final return on investment:

What are some costs to consider?

Our advice to fellow business owners is to be aware of two different types of business operation costs:

• Known costs
• Opportunity costs

Known costs are easily calculable costs that you can immediately take inventory of.

Some examples include:

• Customer Acquisition Cost (CAC)
• Employee salary
• Employee benefits
• Office rental space

To make your life easier, using known costs to calculate your ROI will suffice. That said, known costs don’t tell you the whole picture.

For example, some business leaders often miss the opportunity costs associated with running a business. Opportunity cost is the hidden trade-off cost of investing in one sector of your business over the other.

Take the hiring process as an example. If you decide to build your own sales team, your HR and sales leaders need to spend time to:

• Build a large enough applicant pool
• Conduct market research to create a competitive compensation package
• Screen and interview each candidate
• Onboard a new hire
• Train and upskill based on learned best practices

The opportunity cost here is that the amount of time spent on hiring one salesperson is time that could have been used to improve your product and processes . This hiring process doesn’t even factor in the possibility of any turnover effects — such as severance packages or the process of rehiring to fill the open position. 

It’s because of such opportunity costs that many organizations turn to outsourcing organizations. Take our outsourced lead generation team as an example: we’re able to reduce such opportunity costs by providing you with an entire dedicated team from the get-go. Because we have extensive experience working with a wide range of industries, we’re able to integrate your industry’s best practices with our proven processes in a matter of days.

Outsourcing can also reduce your turnover effects by mitigating the effects of losing a team member. Since every specialist is upskilled and trained on current best practices, another specialist from the outsourcing agency can step in and quickly take over the now-open role. That way, your company doesn’t need to spend countless hours rehiring to fill the same position.

If you’re considering outsourcing your sales team, be sure to consider these challenges beforehand. For example, make sure you’re granted full transparency to the outsourcing agency’s success. That way, you’re able to quickly adjust your strategies to maximize success.

What is a good ROI for a business?

You should be aiming for an ROI of >10% year-over-year . However, keep in mind that this benchmark is dependent on your company size and industry sector.

Generally, service-based industries face lower ROI margins . That’s because you typically have to spend an additional 25-35% per head to cover employee benefits to retain high-performing team members. Of course, you’ll need to ensure your entire customer base has adequate labor coverage to continue delighting customers — thus increasing operation costs.

On the other hand, SaaS industries often benefit from higher profit margins. Since you can deploy a singular product across multiple customers, you don’t need as many people to service your customers. You can even outsource your customer service team to push these costs further down and widen your profit margins.

Now that you know how to calculate your return on investment, let’s walk through our Excel template to help you drill down on your ROI calculations.

Walking through EBQ’s Business Investment Return Calculator

Before you download your ROI calculator, make sure you have your gross profit figure ready in hand. To calculate your gross profit, use the following formula:

From there, follow the worksheet to input all of your known business expenses. Your ROI metric will then be calculated at the bottom of the worksheet. Make sure to note any additional expenses not listed in the template.

We’ve also attached a “Labor Costs” worksheet for your reference. There, you’ll find a typical breakdown of what it costs to hire an internal sales development team. If you’re looking for ways to reduce costs, consider outsourcing your sales development team . That way, you can get a whole team of experts for a fraction of the cost of hiring internally.

As we previously mentioned in this post, the ROI metric is a universally accepted KPI for success. That’s because ROI is relatively simple to calculate and is an objective number with clear  benchmarks for your company.

You can apply this ROI aspect of your business as well. You can also use ROI to sell your products or services to decision-makers by providing an average ROI of those who have used your product. This figure showcases the potential acceleration of profit businesses can see once they invest in your solution.

But keep in mind that there are considerable drawbacks to just relying on ROI to determine success.

Generally, strictly using return on investment as the only KPI can be problematic as it does not consider nuances in the number produced.

For example, the ROI metric does not consider:

• Your business operation: If you’re in the early stages of building your company, your ROI tends to be lower as you’re borrowing money from investors to fund your business.
• Hidden costs: For example, the effects of inflation tend to be overshadowed by the ROI figure.
• Time expense associated with the investment: If you’re using ROI to compare growth, make sure you’re measuring against the same timeframe for a more accurate picture.

While using ROI is still a valid way to evaluate success, make sure you and your stakeholders use other metrics to give you a complete picture of your business health.

How to improve your business ROI

There can be a myriad of reasons as to why you’re seeing a lower ROI number. Typically, it can be boiled down to three main factors:

• Poor processes: We’ve seen a lot of businesses struggling to standardize their process to reflect on what’s worked for them.
• Unfit specialists : Whether it’s because of a lack of training or because of a lack of experience, unqualified team members will hurt your business by reducing productivity and results.
• Inability to track data : The key to company success is being data-driven, so tracking every valuable data is vital to gauging your company’s health.

Regardless of why your ROI is low, we recommend investing in a consultant. Not only do they have experience helping other clients, but they can also understand what it takes to grow a business.

If you’re looking for a team of experts, consider working with EBQ . With over 15 years of experience building other businesses, we know how to scale your businesses based on your current needs and unique business workflows.

TLDR; How to Calculate Your Business ROI

Mastering the art of calculating business ROI is essential for any B2B organization looking to make informed decisions and optimize its investments. By following the comprehensive strategies outlined in this blog post, businesses can gain valuable insights into the performance of their initiatives, identify areas for improvement, and ultimately enhance their overall profitability. 

If you have any questions about how outsourcing can help maximize your ROI, feel free to reach out to one of our Consultants . Our 15+ years of experience allow us to audit your business workflows and find opportunities — as well as accelerate your business goals.

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How to Calculate the Return on Investment for Your Startup

How to calculate roi for a startup.

Return on investment is a typical business concept for calculating the financial benefits of an investment. To measure the performance of a business, managers and executives often calculate the return on investment (ROI). This value can be used to define anything from a monetary return to an efficiency ratio and is typically expressed as a percentage or a ratio. 

In this article, we will go through the definition of Return on Investment, the importance and benefits of ROI calculations, and teach you how to calculate ROI for your startup.

What is ROI?

Return on investment is a performance measure that can be used to evaluate the effectiveness or profitability of an investment or compare the efficacy of several different investments.  The return on investment, or ROI, is an attempt to directly evaluate the amount of return on a specific investment in relation to the cost of the investment.

A company can measure the profitability of any expenditure by calculating the return on investment. Buying pens or fixing an employee's desk are expenses that may not have a direct or monetary return on investment (ROI), but they are still part of a more significant investment. Spending money on a graphic designer to make commercials, a photographer to capture headshots, or a web developer to redesign the company's website are all investments with the potential for a return.

Return on investment (ROI) is a standard metric to assess a project's viability.  An angel investor , for instance, might want to calculate the expected return on their investment before putting money into a company. Divide the annual income or profit by the initial or current investment to estimate the return on investment (ROI).

What is ROI used for?

The return on investment (ROI) metric can assess numerous investment choices by contrasting them to their starting prices. Calculations of return on investment (ROI) are frequently used by businesses when considering previous or prospective investments.

Individuals can analyze their investments and compare one investment to another, whether a stock holding or a financial stake in a small firm, by calculating the return on investment (ROI) and comparing the two.

Sometimes, businesses will employ a project's return on investment (ROI) as a metric of its performance. Before committing to an advertising campaign, a business owner will want to know what kind of return they can expect on their investment. A company's return on investment is considered positive if the money earned is greater than the sum spent.

When calculating annualized ROI, the average yearly return on investment realized during the investment term is what you're after. This is useful because the return on investment (ROI) doesn't account for the time spent holding an investment when calculating ROI. The rate of return on an annualized basis is helpful for comparing the results of various investments across different time frames.

What Are Examples of ROI Calculations?

Businesses might encounter difficulties calculating the investment amounts for each part of the ROI equation.

Considerable investment in new computers, for instance, has several deployment expenses that must be calculated and accounted for. The company must calculate the total cost of ownership, which includes the purchase price, any applicable taxes and shipping fees, any consultation or support fees paid, and the cost of initial installation and ongoing upkeep.

After that, the company would need to determine its net profit for a specified time frame. Hard monetary gains from enhanced efficiency and decreased upkeep expenses relative to older computer systems may contribute to these bottom-line gains.

Thus, a company can compare the return on investment (ROI) of two different computer systems by factoring in upfront expenses and long-term benefits. Which of these two computers, then, is the better financial bet?

At the end of the specified period, the company may use actual data for the total net income and the entire investment cost to determine the ROI. The computer implementation can be gauged by comparing the actual and predicted ROI.

What Are the Benefits of ROI?

When making decisions for your business, knowing how investments affect your profits and your business is essential and beneficial.

There are many benefits to calculating ROI for your business . Let's take a look at some.  

• It's easy to figure out how to calculate return on investment. It only requires a few numbers that may easily be found in any set of financial statements or balance sheets. You need a few business metrics, like net profit and the amount of investment required, which will give you a quick idea of your initial investment.  
• It's easy to figure out what your ROI means. If the number is positive, you made money on this investment. If the number is negative, it means you lost money. ROI is easy to understand, even for people who aren't accountants. Because it is so widely used and so simple to calculate, it enables more accurate comparisons between various companies regarding their investment returns. This makes the calculation results a valuable metric to use when talking to investors.  
• ROI can be worked out for several different investments or your business. This lets you see what parts of your business have been helped by a particular investment, like a marketing campaign that brought in more money or a second location that helped you sell more. As we mentioned, it is a metric used to measure the success of an organization's financial decisions for a specific department or division. The improved metric will help determine which businesses or teams are the most profitable.

How Do You Calculate ROI?

For big companies, figuring out ROI can be a difficult task. But the process is easy for people who own small businesses.

For example, to determine the return on your first business investment, you need to know how much you put into the business and, if you have any, how much long-term debt you have now.  You will also need to know how much money you made after taxes for the year. All this information is in your accounting software, your spreadsheet, or your accounting journals.

There are several ways to figure out the ROI. Most people use net income divided by the total cost of the investment = Net income / Cost of investment x 100.

Here is an example of how a business might calculate its return on investment.

Let's assume that Joel has an e-commerce business. He runs an e-commerce business that sells dog-related products. He wants to raise awareness and boost sales before the holidays, so he buys some social media ads. He spent a total of $2,000 on ads on social media sites to get people to visit his site during the holidays. 

After the end of the holiday shopping season, Joel does the math on his net profit and discovers that the online store he owns has made $10,000 more money than it did during the same time the previous year. After that, he can calculate the advertising's return on investment using the following formula:

ROI = (10,000 / $2,000) x 100 = 500%

This indicates that Joel made five dollars more in net profit for every dollar he invested in advertisements. He can now start to budget for increased expenditure for the upcoming holiday season now that he has seen such a high return on investment (ROI).

Why Is ROI Important for Your Business?

Making smart financial decisions is essential for the success of your business. Your return on investment (ROI) is a crucial metric that can help you compare different investment strategies and determine which will make you the most money.

You can use this metric to make business decisions like investing in a new business or buying a new property to make room for growth.

You can A/B test ways to invest, like on social media platforms. This could be a comparison between Meta and Instagram in terms of your return on investment. For example, you could put the same amount of money into advertisements on each platform, which may give you a better return.

By comparing and evaluating this metric across different investment channels, you can make better financial decisions, get the best return, and grow your business.

How to Increase Your ROI

Depending on what kind of investment you want to make, the best way to increase returns will vary. But there is a way you can try before investing to increase your chances of getting a high return on your money. Eurokick is the solution!

Eurokick is ready to help your startup calculate your return on investment and increase your ROI. Eurokick supports and monitors your startup in every way possible. Contact us and get more information now!

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Return on Investment (ROI)

Step-by-Step Guide to Understanding Return on Investment (ROI)

Learn Online Now

What is ROI?

The Return on Investment (ROI) is a profitability ratio that compares the net profits received at exit to the original cost of an investment, expressed as a percentage.

• ROI stands for “Return on Investment” and measures the profitability of an investment relative to its cost.
• ROI is a method for businesses and investors to determine the efficiency and effectiveness of their capital allocation and investment strategy.
• The ROI formula is the ratio between the net profit earned on an investment and the cost of the investment, expressed as a percentage.
• The ROI ratio is a practical tool for investors because the metric can guide informed financial decisions, such as for tracking the performance of existing investments, or to evaluate the potential return of an investment.

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How to Calculate Return on Investment (ROI)

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The ROI—or “Return on Investment—is the ratio between the net return and the cost of an investment.

The return on investment (ROI) formula is straightforward, as the calculation simply involves dividing the net return on the investment by the investment’s corresponding cost.

• Net Return → Total Profits Received
• Cost of the Investment → Total Amount Spent

In practice, the ROI is not only used by individual and institutional investors to track their portfolio, but also by corporations that rely on the metric for internal purposes, such as their decision-making processes regarding which projects to pursue and for decisions on optimizing how to allocate their capital on hand.

Therefore, the ROI is a method for investors to determine the efficiency of their current capital allocation strategy, including the effectiveness of past investments.

The higher the return on investment (ROI) on a project or investment, the greater the monetary benefits received — all else being equal.

However, what constitutes whether the ROI is adequate differs based on the target return specific to the investor and the length of the holding period, among other factors.

The formula for calculating the return on investment (ROI) is as follows.

• Net Return = Gross Return – Cost of Investment

The difference between the gross return and the cost of investment is the net return.

For purposes of comparability, the return on investment metric is typically expressed in percentage form, so the resulting value from the above formula must then be multiplied by 100.

The numerator in the formula, the return, represents the “net” return — meaning that the cost of the investment must be subtracted from either:

• Gross Returns (or)
• Total Exit Proceeds

For example, suppose a hedge fund is considering an investment, where the expected gross return is $100k while the total cost incurred is $80k.

The net return on the investment is anticipated to be $20k.

• Gross Return = $100k
• Initial Cost = $80k
• Net Return = $20k

With that said, the return on investment (ROI) ratio can be calculated by dividing the $20k net return by the cost of $80k, which comes out to 25%.

• Expected Return on Investment (ROI) = $20k ÷ $80k = 0.25, or 25%

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The return on investment (ROI) is a widespread financial metric due to its simplicity, since only two inputs are necessary to calculate the ROI ratio.

• Cost of Investment

However, one drawback is that the “time value of money” is neglected, i.e. a dollar received today in worth more than a dollar received in the future.

If there are two investments with the same return, yet the second investment requires twice the amount of time until it is realized, the ROI metric on its own fails to capture this important distinction.

Therefore, when making comparisons among different investments, investors must ensure the time frame is the same (or nearby) or otherwise remain cognizant of the timing discrepancies between investments when putting together rankings.

One variation of the metric is called the annualized return on investment, which adjusts the metric for differences in timing.

Furthermore, a common mistake in calculating the metric is neglecting side expenses, which tends to be more applicable to projects in corporate finance.

The ROI calculation must factor in each and every profit and incurred cost associated with the project (e.g. unexpected maintenance fees) and investments (e.g. dividends , interest).

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Suppose an industrial company spent $50 million in capital expenditures (Capex) to invest in new machinery and upgrade their factory.

By the end of the anticipated holding period – which in the context of a company purchasing fixed assets is the end of the PP&E’s useful life assumption – the company received $75 million.

The net return on the PP&E investment is equal to the gross return minus the cost of investment.

• Net Return = $75m – $50m = $25m

The net return of $25 million is then divided by the cost of investment to arrive at the return on investment (ROI).

• Return on Investment (ROI) = $25m ÷ $50m = 50%

Given the $50 million net return and $25 million cost of investment, the ROI is 50%, as shown in the screenshot below.

In the next example scenario, a hedge fund has purchased shares in a publicly-traded company.

On the date of the purchase, the company was trading at $10.00 and the hedge fund bought a total of 4 million shares.

Thus, the cost of investment to the hedge fund comes out to $40 million.

• Cost of Investment = $10.00 × 4m = $40m

Five years from the date of purchase, the hedge fund exits the investment – i.e. liquidates its position – when the shares are up 20% relative to the entry share price at $12.00 per share.

If we assume that 100% of their equity stake is sold, the total proceeds post-sale are $48 million.

• Total Proceeds from Sale = $12.00 × 4m = $48m

The net return comes out to $8m, which is the difference between the total proceeds from the sale ($48m) and the cost of investment ($40m).

The ROI on the hedge fund’s investment is therefore 20%.

Since we are given the holding period of the hedge fund in this particular investment (i.e. 5 years), the annualized ROI can also be calculated.

To calculate the annualized ROI, we’ll use the “RATE” function in Excel to determine the ratio as 3.7%.

Alternatively, we could have divided the total sale proceeds by the cost of investment, raised it to the power of (1/5), and subtracted 1 – which also comes out to 3.7%, confirming our earlier calculation is correct.

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8 Dependable ROI Templates to Track Returns in Excel & ClickUp

Praburam Srinivasan

Growth Marketing Manager

February 13, 2024

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ROI, or Return on Investment, is the go-to metric for tracking the profitability of anything done with a business motive. It’s all about finding how much a project earns relative to its cost, expressed as a percentage. Negative ROIs mean a venture is running at a loss.

Although ROI calculations are pretty basic, they hold immense weight in the corporate world. Decisions about pursuing or dropping projects ride on these numbers.

Sounds demanding? That’s why you need the right ROI templates to manage your company portfolio and optimize your capital allocation strategy.

We bring you a list of the most sophisticated ROI templates for managing sales and investments and making data-driven decisions to maximize your bottom line.

What is an ROI Template?

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Before we get to templates, let’s refresh our knowledge of ROIs from a mathematical standpoint. Return on investment essentially reveals the rate at which your investment in a project or activity has grown or shrunk. Here’s an ROI equation:

Return on Investment (ROI) = (Total Sales – Cost of Investment) ÷ Cost of Investment

The relevance of everything a business does boils down to returns, which is why you need a template to add structure to your net income method .

An ROI template is a financial review tool geared toward project managers and strategic leaders. It centralizes data from ongoing and proposed projects, giving you insights into:

• The most worthwhile projects
• Projects that should be scrapped due to negative/low ROIs
• Lucrative investment opportunities
• Projects blocking more funds (capital) than they should
• The overall financial health of the company

This template provides the framework for planning, calculating, and illustrating your ROI for internal stakeholders. It may come with extra features to set goals, outline ROI-boosting activities, track sales metrics, prioritize projects and tasks, or make predictions.

The type of ROI template you need depends on your goal, whether analyzing a single project, comparing several of them, or creating a company-wide portfolio. Still, for the template to be effective, it should have certain key characteristics , such as:

• Customizability : It should allow you to edit and customize different sections to calculate ROI and track the total cost. For example, many templates enable you to tailor goals using the OKR (objectives and key results) framework
• Visual appeal : You should be able to add elements like images, charts, and graphs to provide a visual representation of ROIs and facilitate comparison
• Clear structure : The best ROI templates have organized sections that let you absorb key information on a price sheet
• Versatility and scalability : While ROI templates typically don’t cater to a specific industry, they must adapt easily to represent different kinds and sizes of investments, expenses, projects, or income pools
• Collaboration options : It should support real-time review and brainstorming sessions with your strategy team

8 ROI Templates to Use in 2024

You’ll find more than a few ROI calculators on the internet, but the well runs pretty dry when it comes to analysis-friendly templates to determine the company’s cash flow.

Keeping diverse business goals in mind, we have cherry-picked eight of the most power-packed ROI templates to evaluate and compare projects and business processes. A large chunk of our templates are from ClickUp —they are completely free and work for most use cases. Options beyond ClickUp may come with a price tag.

Let’s dive in and set your business up for growth!

Our first pick is the ClickUp ROI Commission Sheet Template —ideal for reviewing sales team ROIs and the amount spent on commissions for each member!

This template helps you keep track of the commissions earned by different sales teams and individual members. It’s a one-stop tool to calculate commissions against the number of units sold.

To start using the template, it’s best to keep an ROI range in mind, say 25%–30%. You can feed simple to complicated commission structures to the template and ensure everyone is fairly compensated for the work put in. Adjust commission rates based on current market trends as long as your ROI doesn’t fall below the desired rate.

One of the most commendable features of the template is that your team members can have different commission rates based on their experience or performance .

Here are some practical things you can do with this template:

• ClickUp Goals to every salesperson and track their performance (keep targets realistic to avoid demotivating your team)
• Customize formulas for total commissions or ROI
• Set milestones and incentivize team members to reach them
• Provide feedback to your sales team on a monthly or quarterly basis
• Make budget forecasts based on the latest sales reports

Using the template couldn’t be simpler—just add the names of each salesperson along with relevant information like team classification and commission structure. Track the data through Commission per Team and Commissions per Area views.

Constant changes in sales can make maintaining an average ROI challenging. Luckily, you have the ClickUp Sales Tracker Template to stabilize ROIs in the face of ever-evolving sales processes . This template comes with a chock-full of features to help you:

• Obtain accurate real-time information about all moving aspects of your sales workflow
• Tailor plans and write effective OKRs to meet targets
• Test different sales techniques
• Keep track of achieved and missed goals

If you want to use this template efficiently, all you need to do is feed the right data in the provided Custom Fields. Add info about virtually anything—from Product Type and Profit Target to Number of Returns .

Based on your team’s performance, you can calculate ROIs sorted by products or time periods. Play with the template views to get streamlined perspectives.

For example, the Sales Volume per Month View outlines the total sales for each month, helping you identify patterns and predict future sales. Or, you can use the Sales Volume per Product View and explore the ROI quality of your most popular products.

Keeping track of sales on your own can be a back-breaking task, especially if your company sells thousands of units every month. That’s hardly a problem with this template—it offers excellent features to collaborate with and delegate tasks to your teammates.

And thanks to ClickUp’s rich customization options , you can create a sales tracker that fits your company like a glove!

Keeping track of potential customers is a top priority for any business. But let’s be honest, taking care of leads, conversions, and customer journeys 24/7 is no picnic.

A trivial oversight can lead to losing credibility with customers, ultimately hurting your ROI. But thanks to ClickUp’s Sales Pipeline Template , you can watch your sales pipeline like a hawk day in and day out!

The template provides a host of savvy features to improve client management . Its multiple views and carefully-designed sections let you visualize your sales funnel from top to bottom—review, prioritize, and manage leads with a drag-and-drop interface.

This template is divided into two sections :

• Pipeline management
• Account management

Both parts provide in-depth insight into your sales processes.

To predict future sales and ROIs with high accuracy , we recommend breaking down your pipeline into smaller phases, such as Lead Qualification, Contact, Negotiation, and Closing. Assign tasks to members at each stage, establishing accountability in the process.

Account management is all about customer tracking, addressing feedback and service requests, and identifying areas for improvement. Add Custom Statuses and Last Contacted attributes to each customer to keep your CRM workflow consistent and productive!

Bummed about making manual changes to the template every day? Don’t worry! This template comes with three ClickUp Automations to update Lists and assignees on autopilot.

The ClickUp Real Estate Action Plan Template may be the only industry-specific option on our list, but trust us when we say it can help you make financial projections for any niche .

This template is designed to serve realtors and property managers . It lets you organize and prioritize tasks through daily action plans, helping you create a roadmap for your investment journey and compare properties using ROIs.

At its core, this template is about prospecting potential investment opportunities to increase your ROI. Its profitability-based comparison features make it a versatile ROI analysis tool for any project or portfolio .

Here’s how to use the template to measure the growth of your investments:

• Define measurable goals: Note your target profits and the key metrics for measuring success . You can use ClickUp Docs for record-keeping
• Identify your investments: Add uniform details about all your investment avenues to facilitate comparison. You can generate ROI projections for all or specific projects
• Make side-by-side ROI comparisons: Leverage ROI figures to select the project(s) worth investing in

It’s only a rough sketch, though, as dozens of processes stand between you and your desired ROI. But remember that this is an action plan template , so it will help you build a detailed plan for increasing your yield in the long run. 🤑

To understand and boost your ROI, you first need to analyze sales metrics from different angles. The ClickUp Sales KPI Template sets you up with a central hub for measuring your team’s performance and making plans for increasing revenue potential! 📈

The template presents sales KPIs across three sections :

• Weekly report
• Monthly report
• Revenue board per month (a Kanban-style display showcasing weekly sales for one month)

The template gives you 15 Custom Fields representing metrics like the number of sales, total sales revenue, upsell attempts, successful upsells, and number of quotes.

Want to investigate particular metrics? You can sort between fields using filters and generate focused reports with net profit figures for every week or month.

Besides helping you monitor your ROI, this template offers plenty of collaboration and customization tools . You can color-code sections, play with columns, and create unique layouts to promote at-a-glance views of relevant KPIs.

One of the fastest ways to ensure more people hear about your company is through marketing content and marketing campaigns, whether email, social media ads, flyers, or billboards. But would you be pouring money into marketing projects without calculating ROI?

A marketing-specific ROI template helps predict the success of your efforts by estimating the profitability of the relative spending. It’s used to budget or justify the marketing costs like ads, customer surveys, agency fees, and staff salaries.

Make use of the Marketing ROI Template by SlideTeam and create the perfect visual representation of your past or future campaigns for your stakeholders. This PowerPoint template comes with 100% editable slides, custom icons, and shapes.

While the default slides have predefined elements, it’s up to your marketing team to change them according to your audience and brand. You can customize the colors and fonts and add dialog boxes to make the presentation easy to grasp for first-time viewers.

This template is mostly useful for communicating your plans with your leadership or accounts teams in budget meetings.

Calculating ROIs is no big deal, but knowing how to present the data cohesively to a general audience is a tough job. In most cases, the biggest obstacle is communicating numbers to people with no background in finance or accounting.

The PowerPoint ROI Tracking Report Template by SlideTeam resolves this problem. Its simple table structure presents numerical basics without overwhelming your audience. You can list the cost of an investment and the generated revenue and connect them with the ROI value in a single window!

Representing profit numbers can be even more challenging if you’re showcasing more than one investment, which is often the case. But with this template, you’ll have more than enough room to outline multiple investments and create reports on how they compare.

One of the most significant benefits of this template is its user-friendliness . Since it’s a PowerPoint template, most users enjoy the sense of familiarity it provides.

Every element in the template is customizable—add or delete sections, change colors, or use icons and symbols to add character to your presentation!

If all you need is an ROI calculator for super complicated investments or projects, the Excel ROI Template by 365FinancialAnalyst fits the bill.

This template is intricately designed for complex ROI calculations that depend on various variables, such as sales team commissions, taxes, and dividend yields. Committing to such labor-intensive, error-prone computations is not viable manually.

One small mistake could create a distorted picture of your company’s health. As a result, you could end up taking the wrong moves and hurting your business.

This free ROI Excel spreadsheet template is all about making calculations straightforward. It comes with defined formulas for extracting the correct return rate after factoring in all variables—all you have to do is enter the data in the required cells.

The template prioritizes functionality over aesthetics, so don’t expect customization or collaboration features.

Measure Your Company’s Profitability With ROI Templates

ROI templates are valuable tools for determining your company’s profitability. By utilizing these templates, you can easily and accurately track your investments, measure their returns, and ultimately make informed decisions about finances.

Remember, the key to boosting your company’s profitability lies in consistent monitoring and analyzing. ROI templates can serve as your guiding light in this process, helping you navigate the complex landscape of business finance.

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Return on Investment (Single & Multi-Period ROI): Formulae, Examples, Calculator

Return on Investment is one of the most common indicators used for the cost-benefit analysis . This is probably because of its simplicity and understandability of the information conveyed. In Project Management, it is a success measure suggested by the Project Management Institute (PMI; source: PMBOK ®, 6 th ed., part 1, ch. 1.2.6.4, p. 34). However, the basic ROI has some limitations, e.g. if you need to compare alternatives with different tenors.

In this article, we will introduce the fundamental concept of return on investment measurement as well as a modification that allows for a multi-year ROI calculation. If you need to calculate the ROI for your project options or investment alternatives, use our free calculator in this article.

What Is Return on Investment for Multiple Years?

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The return on investment is an indicator of the profitability of an investment or a project . As the ROI is a percentage value, it can be used to compare different projects and investment alternatives with respect to their profitability.

The result is a ratio of benefits and returns in relation to investment and costs. This helps compare alternatives with different investment amounts where absolute returns would not be an appropriate measure for comparison purposes.

Returns may occur at different points in time for different alternatives. It does make a difference whether you are receiving a return at an early or late point in your projection.

Therefore, there is a specific formula for returns that are earned over multiple periods or years. It helps you compare the ROIs of investment alternatives with a different tenor or different cash flow characteristics ( source ).

How Is the Return on Investment Calculated?

In its most simple form, the ROI is calculated by dividing the returns after cost by the investment:

This formula may be applied to single-period projects and investments (e.g. a project delivered within one year, a bond with a 1-year maturity). In practice, it is also used for multiple periods which however may not be accurate as the value of time may not be sufficiently considered. If this aspect is not deemed material, investment and project alternatives can be compared using a basic ROI as long as it relates to a small number of periods and the tenors of all alternatives are identical. However, this is not as accurate as the multi-period ROI that is introduced below.

How Is the Return on Investment Calculated for Multiple Return Periods?

If you are comparing project options and investment alternatives with different tenors, you achieve more accurate results when you are using the ROI formula for multiple years instead of the basic ROI concept. You will then be able to compare the annualized ROI of the different alternatives.

The ROI for multiple periods distributes the return earned at the end of the investment’s tenor across the periods. Thus, an investment with returns over 2 years can be compared with an investment for 4 years, for instance.

The Return on Investment formula is as follows:

where: ROI [multiple periods] = cumulative return over all periods r = return per period [in %] (the equation needs to be solved for r) t = number of periods

The first component of this formula is similar to the future value formula (FV = (1+r)^t) solved for r as the periodic (e.g. annualized) return. Subsequently, r (in %) is the relevant measure to compare different alternatives.

In Excel, the multi-period ROI can be determined by using the RATE Function. It requires the parameters

• nper: the number of periods,
• pmt: payments, this parameter can remain empty for the purpose of this calculation,
• present value: to be populated with the investment amount (negative figure, representing an initial cash outflow),
• future value: the total return (incl. amortization of the initial investment) at the end of the time horizon,
• type (of cash flow): select whether cash flows occur at the end (the typical case) or beginning of a period,
• guess: an estimation of the rate, if available (can be empty).

The result is the annualized return in percent which however is not as accurate as the internal rate of return method if cash flows occur between the first and last periods.

This approach assumes that all returns occur in the form of a single cumulative inflow in the last period of the investment’s tenor. This is appropriate for compounded investments, e.g. a bond that accumulates yields over time which are paid at maturity.

However, other investments and types of projects may produce returns before the end of the projection. These returns would have to be accumulated to apply the above formula. This is often done in a rough way by using the sum of these returns as a total return in the last period. This approach does not take the value of time into account – note that a return in an earlier period is usually more valuable than one in a later period – and is therefore not recommended.

Calculating and considering the sum of the future values of each and every return at the end of the investment tenor is the more accurate alternative method. However, this requires further assumptions (i.e. the interest rate) and additional calculation efforts. Another more accurate technique is the internal rate of return (IRR) method.

Considerations when Calculating the Return on Investment

All kinds of returns in the form of yields, benefits and inflows are basically taken into account when calculating the ROI.

For financial investments,  this may include for instance:

• dividend payments,
• capital gains,
• other positive financial inflows or gains.

The definition of returns in project management is not that straightforward though. The benefits of projects are often more complex than those of plain-vanilla financial instruments.  They may consist of both qualitative and monetary benefits – examples are:

• increased or newly produced earnings or revenue,
• cash inflows,
• cost savings due to efficiency gains implemented by a project,
• appreciations of assets,
• qualitative benefits converted into monetary equivalents.

If you are performing a cost-benefit analysis in the context of a project, you will want to be transparent (and seek stakeholders’ approval, if necessary) on the scope of benefits considered for your ROI assessment. You might also check existing requirements for profitability analyses and business case evaluations within the organization you are working for.

The same recommendation holds true for the question of whether taxes are to be taken into account. While some organizations and investors prefer including tax effects into an ROI calculation, others may separate those aspects to reduce complexity or allow for a more holistic assessment of tax effects.

Whichever scope of returns you are defining and using, make sure you are applying these criteria to all options you are comparing. This is to ensure a level playing field among the alternatives and ensure the comparability of your results.

Similar to the considerations for the scope of returns, you will have to define the investment and cost that you include in your evaluation. For financial investments, you are probably able to determine the costs of incurring and managing an investment, besides the initial investment amount.

In projects, there is usually a distinction in different types of costs. Most fundamental is the decision on how direct and indirect costs are treated. Certain costs may be part of the investment – e.g. cost of resources used in a project – while other types such as operating cost of an asset might not be defined as part of the investment.

While this does not necessarily change the return amount which is a net return anyway, it will affect the denominator. The more cost types you include in your total investment amount, the lower the ROI value. When you compare different alternatives, you should therefore allocate cost types in a consistent manner and be aware of the effects it may have depending on the characteristics of the alternatives.

Fill in the expected returns and the calculated investment. For the assumptions and components that need to be considered, refer to the previous section. The calculator will determine the basic ROI which can be used for single-period tenors or investment alternatives with an identical timeline.

Examples of Basic and Multiple Years ROI

In this example, a company is comparing 3 investment alternatives with different characteristics and returns. All three alternatives require an initial investment in year 0 (negative cash flow) and come with a single payment at maturity that consists of the repayment and the return.

The expected investments and repayments are as follows:

A calculation of the basic Return on Investment and the multi-year ROI leads to the following results:

The alternatives 1 and 2 are both repaid in period 3. Thus, the basic ROI would be sufficient to compare these two alternatives. Alternative 1 with a total return of 30% is more beneficial (without prejudice to other decision criteria) than alternative 2 that produces a negative return (i.e. a loss) of 8.33%.

If alternative 3 is included in the comparison, the multiple-period ROI needs to be used to consider the different tenors. Using the annualized return as the only criterion, alternative 3 would be the most profitable investment (with 13.33% annualized return compared to 9.14% and -2.86% for alternatives 1 and 2, respectively).

Example 2) Use of Single- and Multi-Period ROI to Compare Project Options

In this example, three project options are compared with each other. These numbers have been used for other investment evaluation approaches as well – refer to our cost-benefit analysis overview to learn more details as well as the results of other methods.

The cash flow projections and classification of investment and operational cost is as follows:

The ROI calculation and the resulting ROIs for these examples are summarized in the following table:

Comparing the ROIs of the 3 project options reveals a minor advantage of option 1 over option 3 while option 2 looks much less appealing. As the projections of all options have a time horizon of 6 years, a ranking based on the annualized return would lead to the same result (unless returns were compounded).

Considering the characteristics of the 3 cash flow projections, the use of the ROI methods for this example is not ideal. Inflows and outflows differ significantly among the options and periods. Thus, an assessment based on a more accurate method (see “alternative methods” section below) is more appropriate.

What Are the Advantages and Disadvantages of the ROI?

While the return on investment is a popular and widespread measure, it comes with a number of pros and cons described below. As important as the fundamental advantages and disadvantages of this technique is the way the ROI is used in your analysis. MIT Sloan Review points out that the “biggest challenge with ROI isn’t a technical deficiency but confusion over how it is used“ ( source ).

• Ideal for investments with a single return,
• common easy to understand success measure,
• makes options with different investment amounts comparable,
• the modified formula can be used for multi-year returns.
• ROI calculation may require several assumptions and definitions, e.g. scope of returns, cost, and investment,
• these assumptions may have a strong impact on the results,
• inaccurate results if returns occur at different periods,
• basic approach not suitable for multi-year investments and endeavors,
• qualitative returns need to be converted into monetary values (which requires further assumptions).

For use in project management, there are various alternatives to an ROI. These include payback period , benefit-cost ratio , net present value and internal rate of return . Each of these success measures comes with its respective advantages and disadvantages.

Read our overview of cost-benefit analysis methods to get a full comparison of these approaches:

Cost-Benefit Analysis for Business Cases (Definition, Steps, Example)

Return on Investment is a common indicator to measure the profitability of investments and projects, While it can help achieve comparability of different alternatives, it requires some assumptions that may impact the results significantly. Being transparent and applying them in a consistent manner is key to ensure the comparability of the results across different options.

If you are working on a cost-benefit analysis, you should try not to rely on the results of only one success measure. Read more about the various methods to evaluate different project options and use a set of measures that fits best for your assessment.

What is Return on Investment (ROI)?

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The benefit from investing in a certain resource

Return on Investment (ROI) is a performance measure used to evaluate the returns of an investment or to compare the relative efficiency of different investments. ROI measures the return on an investment relative to the cost of the investment.

The Return on Investment (ROI) formula:

Where “Gain from Investment” refers to the amount of profit generated from the sale of the investment or the increase in value of the investment regardless of whether it is sold or not.

Return on Investment is a very popular financial metric due to the fact that it is a simple formula that can be used to assess the profitability of an investment. ROI is easy to calculate and can be applied to all kinds of investments.

Return on investment helps investors to determine which investment opportunities are most preferable or attractive.

For example, let us consider Investment A and Investment B, each with a cost of $100. These two investments are risk-free (cash flows are guaranteed) and the cash flows are $500 for Investment A and $400 for Investment B next year.

Calculating the Return on Investment for both Investments A and B would give us an indication of which investment is better. In this case, the ROI for Investment A is ($500-$100)/($100) = 400%, and the ROI for Investment B is ($400-$100)/($100) = 300%. In this situation, Investment A would be a more favorable investment.

1. Due to the fact that Return on Investment is expressed as a percentage (%) and not as a dollar amount, it can clear up confusion that may exist in merely looking at dollar value returns.

For example, Investor A made $200 investing in options and Investor B made $50,000 investing in new condominiums. If only this information is given, you may assume that Investor B holds the better investment.

However, let us continue the example by assuming Investor A incurred costs of $50 and Investor B incurred costs of $40,000 to attain the respective $200 and $50,000 profits. These additional facts illustrate that the dollar value of return bears no significance without considering the cost of the investment. In this example, the return on investment for Investor A is ($200-$50)/($50) = 300%, while the ROI for Investor B is ($50,000-$40,000)/($40,000) = 25%. Therefore, Investor A actually holds the better investment.

2. The time horizon must also be considered when you want to compare the ROI of two investments.

For example, assume that Investment A has an ROI of 20% over a three-year time span while Investment B has an ROI of 10% over a one-year time span. If you were to compare these two investments, you must make sure the time horizon is the same. The multi-year investment must be adjusted to the same time horizon as the one-year investment. To arrive at an average annual return, follow the steps below.

Changing a multi-year ROI into an annualized year formula:  

x = Annualized return

T = Time horizon

For Investment A with a return of 20% over a three-year time span, the annualized return is:

x = Annualized

T = 3 years

reTherefore, (1+x) 3 – 1 = 20%

Solving for x gives us an annualized ROI of 6.2659%. This is less than Investment B’s annual return of 10%.

To check if the annualized return is correct, assume the initial cost of an investment is $20. After 3 years, $20 x 1.062659 x 1.062659 x 1.062659 = $24

ROI = (24 – 20) / (20) = 0.2 = 20%.

ROI can be used for any type of investment. The only variation in investments that must be considered is how costs and profits are accounted for. Below are two examples of how return on investment can be commonly miscalculated.

• Stocks: Investors commonly fail to incorporate transaction costs and dividend payouts into the ROI of stocks. Transaction costs are a cost to your investment, while dividend payouts are a gain to your investment. The investor must take into account both the transaction cost and dividend gain to get an accurate return calculation. If this is not done, then the ROI would be misrepresented.
• Real Estate: Investors commonly fail to incorporate rental income, taxes, insurance, and upkeep in the return on investment calculation of real estate. Rental income is a gain to your investment, while taxes, insurance, and upkeep are costs to your investment.

It is important to account for all costs and gains of your investment throughout its entire lifespan, instead of merely taking the ending investment value and dividing it by initial cost.

Download CFI’s free ROI Calculator in Excel to perform your own analysis.  The calculator uses the examples explained above and is designed so that you can easily input your own numbers and see what the output is under different scenarios.

The calculator covers four different methods of calculating ROI: net income, capital gain, total return, and annualized return.

The best way to learn the difference between each of the four approaches is to input different numbers and scenarios and see what happens to the results.

Enter your name and email in the form below and download the free template now!

Return on Investment, one of the most used profitability ratios, is a simple formula that measures the gain or loss from an investment relative to the cost of the investment.

ROI is expressed as a percentage and is commonly used in making financial decisions, comparing companies’ profitability, and comparing the efficiency of different investments.

Watch this short video to quickly understand the main concepts covered in this guide, including the formula for calculating ROI and the reasons why ROI is a useful metric to look at.

CFI is a global provider of financial modeling courses and financial analyst certification . To learn more about evaluating investments, see the following additional CFI resources:

• Return on Assets
• Return on Equity
• Internal Rate of Return
• Income Investing
• Modified Dietz Return
• See all accounting resources
• See all capital markets resources
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Plan Projections

ideas to numbers .. simple financial projections

Home > Calculators > Return on Investment Calculator

Return on Investment Calculator

This return on investment calculator will help you to calculate return on investment for use in the Financial Projections Template and your business plan.

The Excel ROI calculator, available for download below, helps a business calculate return on investment.

How to use the Return on Investment Calculator

To use the return on investment worksheet enter details relating to the investment and the exit valuation.

Firstly enter the following details in relation to the investment.

• The amount invested in the business.
• The percentage of the business equity purchased.
• The number of years after which the investor exits the business.

Value on Exit

Secondly enter the following details relating to the exit valuation

• The PE ratio for the business.
• The annual profits on which to base the valuation

Additionally our blog article on return on investment gives full details of how this return on investment calculator can be used.

Return on Investment Calculator Download

The return on investment spreadsheet is available for download in Excel format by following the link below.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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• Business Planning

Business Plan Financial Projections

Written by Dave Lavinsky

Financial projections are forecasted analyses of your business’ future that include income statements, balance sheets and cash flow statements. We have found them to be an crucial part of your business plan for the following reasons:

• They can help prove or disprove the viability of your business idea. For example, if your initial projections show your company will never make a sizable profit, your venture might not be feasible. Or, in such a case, you might figure out ways to raise prices, enter new markets, or streamline operations to make it profitable. 
• Financial projections give investors and lenders an idea of how well your business is likely to do in the future. They can give lenders the confidence that you’ll be able to comfortably repay their loan with interest. And for equity investors, your projections can give them faith that you’ll earn them a solid return on investment. In both cases, your projections can help you secure the funding you need to launch or grow your business.
• Financial projections help you track your progress over time and ensure your business is on track to meet its goals. For example, if your financial projections show you should generate $500,000 in sales during the year, but you are not on track to accomplish that, you’ll know you need to take corrective action to achieve your goal.

Below you’ll learn more about the key components of financial projections and how to complete and include them in your business plan.

What Are Business Plan Financial Projections?

Financial projections are an estimate of your company’s future financial performance through financial forecasting. They are typically used by businesses to secure funding, but can also be useful for internal decision-making and planning purposes. There are three main financial statements that you will need to include in your business plan financial projections:

1. Income Statement Projection

The income statement projection is a forecast of your company’s future revenues and expenses. It should include line items for each type of income and expense, as well as a total at the end.

There are a few key items you will need to include in your projection:

• Revenue: Your revenue projection should break down your expected sales by product or service, as well as by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Expenses: Your expense projection should include a breakdown of your expected costs by category, such as marketing, salaries, and rent. Again, it is important to be realistic in your estimates.
• Net Income: The net income projection is the difference between your revenue and expenses. This number tells you how much profit your company is expected to make.

Sample Income Statement

2. Cash Flow Statement & Projection

The cash flow statement and projection are a forecast of your company’s future cash inflows and outflows. It is important to include a cash flow projection in your business plan, as it will give investors and lenders an idea of your company’s ability to generate cash.

There are a few key items you will need to include in your cash flow projection:

• The cash flow statement shows a breakdown of your expected cash inflows and outflows by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Cash inflows should include items such as sales revenue, interest income, and capital gains. Cash outflows should include items such as salaries, rent, and marketing expenses.
• It is important to track your company’s cash flow over time to ensure that it is healthy. A healthy cash flow is necessary for a successful business.

Sample Cash Flow Statements

3. Balance Sheet Projection

The balance sheet projection is a forecast of your company’s future financial position. It should include line items for each type of asset and liability, as well as a total at the end.

A projection should include a breakdown of your company’s assets and liabilities by category. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.

It is important to track your company’s financial position over time to ensure that it is healthy. A healthy balance is necessary for a successful business.

Sample Balance Sheet

How to Create Financial Projections

Creating financial projections for your business plan can be a daunting task, but it’s important to put together accurate and realistic financial projections in order to give your business the best chance for success.  

Cost Assumptions

When you create financial projections, it is important to be realistic about the costs your business will incur, using historical financial data can help with this. You will need to make assumptions about the cost of goods sold, operational costs, and capital expenditures.

It is important to track your company’s expenses over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Capital Expenditures, Funding, Tax, and Balance Sheet Items

You will also need to make assumptions about capital expenditures, funding, tax, and balance sheet items. These assumptions will help you to create a realistic financial picture of your business.

Capital Expenditures

When projecting your company’s capital expenditures, you will need to make a number of assumptions about the type of equipment or property your business will purchase. You will also need to estimate the cost of the purchase.

When projecting your company’s funding needs, you will need to make a number of assumptions about where the money will come from. This might include assumptions about bank loans, venture capital, or angel investors.

When projecting your company’s tax liability, you will need to make a number of assumptions about the tax rates that will apply to your business. You will also need to estimate the amount of taxes your company will owe.

Balance Sheet Items

When projecting your company’s balance, you will need to make a number of assumptions about the type and amount of debt your business will have. You will also need to estimate the value of your company’s assets and liabilities.

Financial Projection Scenarios

Write two financial scenarios when creating your financial projections, a best-case scenario, and a worst-case scenario. Use your list of assumptions to come up with realistic numbers for each scenario.

Presuming that you have already generated a list of assumptions, the creation of best and worst-case scenarios should be relatively simple. For each assumption, generate a high and low estimate. For example, if you are assuming that your company will have $100,000 in revenue, your high estimate might be $120,000 and your low estimate might be $80,000.

Once you have generated high and low estimates for all of your assumptions, you can create two scenarios: a best case scenario and a worst-case scenario. Simply plug the high estimates into your financial projections for the best-case scenario and the low estimates into your financial projections for the worst-case scenario.

Conduct a Ratio Analysis

A ratio analysis is a useful tool that can be used to evaluate a company’s financial health. Ratios can be used to compare a company’s performance to its industry average or to its own historical performance.

There are a number of different ratios that can be used in ratio analysis. Some of the more popular ones include the following:

• Gross margin ratio
• Operating margin ratio
• Return on assets (ROA)
• Return on equity (ROE)

To conduct a ratio analysis, you will need financial statements for your company and for its competitors. You will also need industry average ratios. These can be found in industry reports or on financial websites.

Once you have the necessary information, you can calculate the ratios for your company and compare them to the industry averages or to your own historical performance. If your company’s ratios are significantly different from the industry averages, it might be indicative of a problem.

Be Realistic

When creating your financial projections, it is important to be realistic. Your projections should be based on your list of assumptions and should reflect your best estimate of what your company’s future financial performance will be. This includes projected operating income, a projected income statement, and a profit and loss statement.

Your goal should be to create a realistic set of financial projections that can be used to guide your company’s future decision-making.

Sales Forecast

One of the most important aspects of your financial projections is your sales forecast. Your sales forecast should be based on your list of assumptions and should reflect your best estimate of what your company’s future sales will be.

Your sales forecast should be realistic and achievable. Do not try to “game” the system by creating an overly optimistic or pessimistic forecast. Your goal should be to create a realistic sales forecast that can be used to guide your company’s future decision-making.

Creating a sales forecast is not an exact science, but there are a number of methods that can be used to generate realistic estimates. Some common methods include market analysis, competitor analysis, and customer surveys.

Create Multi-Year Financial Projections

When creating financial projections, it is important to generate projections for multiple years. This will give you a better sense of how your company’s financial performance is likely to change over time.

It is also important to remember that your financial projections are just that: projections. They are based on a number of assumptions and are not guaranteed to be accurate. As such, you should review and update your projections on a regular basis to ensure that they remain relevant.

Creating financial projections is an important part of any business plan. However, it’s important to remember that these projections are just estimates. They are not guarantees of future success.

Business Plan Financial Projections FAQs

What is a business plan financial projection.

A business plan financial projection is a forecast of your company's future financial performance. It should include line items for each type of asset and liability, as well as a total at the end.

What are annual income statements? 

The Annual income statement is a financial document and a financial model that summarize a company's revenues and expenses over the course of a fiscal year. They provide a snapshot of a company's financial health and performance and can be used to track trends and make comparisons with other businesses.

What are the necessary financial statements?

The necessary financial statements for a business plan are an income statement, cash flow statement, and balance sheet.

How do I create financial projections?

You can create financial projections by making a list of assumptions, creating two scenarios (best case and worst case), conducting a ratio analysis, and being realistic.

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ROI Formula (Return on Investment)

It is an important financial ratio that measures the net return or profit an investor receives on its original investment amount.

Currently an investment analyst focused on the  TMT  sector at 1818 Partners (a New York Based Hedge Fund), Sid previously worked in private equity at BV Investment Partners and BBH Capital Partners and prior to that in investment banking at UBS.

Sid holds a  BS  from The Tepper School of Business at Carnegie Mellon.

What is Return on Investment (ROI)?

Roi formula, example of the roi formula calculation, benefits of the roi formula, limitations of the roi formula, annualized roi formula, alternatives to the roi formula.

Return on Investment is an important financial ratio that measures the net return or profit an investor receives on its original investment amount. The calculation involves dividing the investment's net income by the initial investment cost.

This profitability ratio, expressed as a percentage, compares net profits at the investment's exit to the initial cost. Businesses and investors widely utilize this ratio to evaluate the performance of investments, guiding strategic decisions and future investment prospects.

The ROI formula , a simple yet powerful tool, helps compare different investments and assess their potential returns. It allows investors to discern which investments yield better returns and aids in optimizing their investment portfolios.

By analyzing this ratio, investors gain insights into the profitability and viability of various investment options, aiding them in making informed decisions regarding resource allocation and investment prioritization.

This metric acts as a guiding beacon, assisting in evaluating, comparing, and maximizing returns on investment, contributing significantly to sound financial decision-making.

Key Takeaways

• Return on Investment is an important financial ratio that measures an investor's net return or profit on its original investment amount.
• It is calculated by dividing an investment's net return by the initial investment cost, expressed as a percentage.
• Serving as a benchmark, it allows comparisons across different investments and projects, enabling analysts to gauge performance irrespective of scale or industry.
• However, the formula's inability to consider timeframes and its vulnerability to manipulation and subjective interpretations necessitate supplementary metrics for a comprehensive assessment.
• Several alternatives exist to the conventional ROI formula, such as IRR, NPV, ROE, and Profitability Index (PI), offering nuanced perspectives and diverse evaluations of investment performance.

The Return on Investment formula offers a clear path to assess an investment's performance. It can be calculated as

Return On Investment = (Net Return / Cost of Investment) × 100

The numerator, the net return obtained by subtracting the investment cost from either gross returns or total exit proceeds, encapsulates the total profits received. In contrast, the denominator, the cost of the investment, signifies the total amount spent by the investor.

Expressed as a percentage, this metric simplifies complex financial evaluations, allowing investors to gauge the efficiency of their capital allocation strategy.

A higher ratio signals greater monetary benefits, provided other factors remain constant. Yet, determining the adequacy of this ratio hinges on various factors, such as individual target returns and the investment's holding period.

So, in finance, this formula isn't just about numbers; it's a compass that guides investors and businesses through the intricacies of investment evaluation and strategic decision-making.

Having established the formula on how to compute the return on investment, let’s look at an illustration to help you understand the calculations vividly.

Consider an investment whose gross returns amount to $100,000 while the cost of investment initially stood at $80,000. Therefore, the net return from this investment is

Net Return = Gross Return - Cost of Investment

= $100,000 - $80,000 = $20,000           

= ($20,000 / $80,000) × 100

This can be further interpreted as for every dollar invested; an additional 25 cents are generated as profit for the investor. This ratio gives an overview of the benefits one can expect from a particular investment, which helps investors and corporations make informed strategic decisions.

These are very simplistic computations that give both the investor and the firm a single benchmark on the profitability of any investment and how resources should be allocated to maximize returns.

This formula holds several advantages, providing a versatile and comprehensive evaluation of investments:

• Simplicity in Calculation: It requires only two figures – the original investment cost and the net profit, making it straightforward and accessible for quick assessments of various investment opportunities.
• Universal Understanding: ROI is a globally recognized concept that ensures clarity and comprehension across diverse audiences. Its widespread acknowledgment facilitates effective communication and decision-making, as it resonates universally in financial discussions.
• Efficiency Benchmark: Serving as a benchmark, it allows comparisons across different investments and projects, enabling analysts to gauge performance irrespective of scale or industry. This enables informed decisions regarding resource allocation.
• Forward-Looking Tool: ROI doesn’t just analyze past performance; it's a forward-looking tool. It assists in  financial forecasting  and planning by indicating potential returns and aiding in assessing future investment prospects.
• Versatility in Application: Its adaptability makes it applicable across various sectors and investment types, from individual stocks to large-scale business initiatives. This versatility grants flexibility in assessing diverse portfolios and business endeavors.

This formula holds undeniable utility, yet it has inherent limitations that warrant consideration.

Time Disregard

Ignoring the element of time, the formula oversimplifies by solely focusing on returns and costs. It fails to differentiate between investments with similar ROIs but differing timeframes.

For instance, two investments boasting a 50% ROI might seem identical, but one taking three years to yield and another thirty years unveils a disparity in their actual worth over time, where factors such as inflation and the time value of money come into play.

Vulnerability to Manipulation

Variances emerge in calculations due to subjective interpretations and exclusions. Different formula applications or omissions of costs can skew the outcomes.

For example, a marketing manager might overlook additional expenses in property investment calculations, such as maintenance costs, property taxes, and other legal fees, which leads to inflated ROI projections that don't encompass all incurred costs.

Limited Scope

The ROI formula falls short of encapsulating the complete financial landscape. It omits comprehensive factors like risk, opportunity cost, and qualitative aspects of investments, providing a narrow quantitative perspective.

Inability to Account for Changing Conditions

The formula often fails to adapt to changing market conditions or dynamic factors influencing investment performances. It remains static and doesn't accommodate fluctuations that could affect future returns.

This formula, while valuable, requires supplementing with additional metrics and qualitative assessments to form a holistic view, ensuring informed decision-making and comprehensive investment evaluations.

The Annualized ROI formula corrects the time-related deficiencies of traditional ROI, offering a more accurate depiction of investment performance over varying timeframes.

Calculated by considering the holding period provides a standardized metric for comparing investments with different durations.

Annualized ROI = [(Ending Value ÷ Beginning Value) ^ (1 ÷ Number of Years)] - 1

For instance, consider two investments with identical regular ROIs of 40%. Investment A yields the return in 2 years, while Investment B realizes it in 5 years. Applying the Annualized ROI formula:

• Investment A: [(1 + 0.40) ^ (1 / 2 years)] - 1 = 18.92% annualized
• Investment B: [(1 + 0.40) ^ (1 / 5 years)] - 1 = 7.24% annualized

Despite both investments having the same regular ROI, the annualized ROI uncovers the stark difference due to varying holding periods.

Investment A, yielding 18.92% annually over 2 years, outshines Investment B, generating a mere 7.24% annually over 5 years. Therefore, Investment A presents a better opportunity, showcasing higher annual returns within a shorter timeframe.

Annualized ROI acts as a magnifying glass, illuminating the true potential of investments and making it a crucial metric for investors evaluating opportunities.

It emphasizes investments' returns and time efficiency, guiding investors toward more fruitful avenues, thereby balancing returns and holding periods for informed investment decisions.

Several alternatives exist to the conventional Return on Investment formula, offering nuanced perspectives and diverse evaluations of investment performance:

• Internal Rate of Return (IRR): IRR represents all cash flows across an investment's lifespan, expressed as an annual growth rate. It considers the timing and size of cash flows made during the investment period, making it favorable in sectors like private equity and venture capital.
• Return on Equity (ROE) and Return on Assets (ROA): These ratios, unlike ROI, focus on specific components like equity and assets, offering a more targeted approach. However, they solely depict annual returns without considering cash flow timing, making them less comprehensive in evaluating the investment's full lifespan.
• Net Present Value (NPV): NPV determines an investment's worth by subtracting the original investment cost from the present value of future cash flows. It considers the time value of money and helps evaluate whether an investment generates more returns than the cost of investment. A positive NPV value is profitable for investing, as the present value of the future cash flows is greater than the initial investment cost.
• Profitability Index (PI): PI measures the investment's profitability. It compares the present value of future cash flows to the initial investment, offering a ratio for ranking and selecting projects. A PI value greater than 1 is desirable for the investment.

Each alternative presents a unique viewpoint, emphasizing different aspects of an investment. IRR, NPV, ROE, ROA, and PI cater to varied preferences and requirements, providing a multifaceted understanding of investment performance beyond the conventional formula.

Their diversity enables analysts and investors to choose metrics aligning with their specific evaluation needs and investment objectives.

ROI, a fundamental financial metric, encapsulates an investment's performance by gauging returns relative to its cost. This ratio, expressed in percentage, is a pivotal tool for investors and businesses, providing critical insights and aiding in strategic decision-making.

It serves as a compass, guiding evaluations of current and prospective investments and unveiling profitability or loss scenarios. The simplicity of its calculation - dividing net profit (or loss) by the initial investment - makes it accessible and widely used across diverse industries.

However, while this metric offers a bird's-eye view of investment success, its limitations are notable. The formula's inability to consider timeframes and its vulnerability to manipulation and subjective interpretations necessitate supplementary metrics for a comprehensive assessment.

To truly comprehend an investment's worth, considering alternatives like IRR, NPV, ROE, and Profitability Index (PI), among others, proves crucial. These metrics offer a nuanced view, accounting for different facets like timing, size of cash flows, and profitability, complementing the ROI's perspective.

Everything You Need To Master Financial Statement Modeling

To Help You Thrive in the Most Prestigious Jobs on Wall Street.

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Reviewed and edited by Parul Gupta | LinkedIn

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What Is Return on Investment (ROI)?

How to calculate return on investment (roi), how to calculate roi in excel, calculating roi in excel example, roi pros and cons.

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Calculating Return on Investment (ROI) in Excel

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Return on investment (ROI) measures the profit generated from an investment. It seeks to identify how much money an investment made relative to its cost.

The formula for calculating this popular profitability metric is simple. You divide the investment's net income by its original cost and then multiply that figure by 100 to arrive at a percentage. The higher the percentage, the more profitable the investment.

Key Takeaways

• Return on investment (ROI) is a popular profitability metric used to evaluate how well an investment has performed.
• It’s calculated by dividing how much the investment made or lost by its cost and then multiplying that figure by 100 to arrive at a percentage.
• The higher the percentage, the more profitable the investment.
• ROI can be calculated easily in Excel. You just input the data, add the formula, and the software works it out.
• ROI is great for making comparisons but doesn’t consider the time value of money.

The formula for calculating ROI is as follows:

(Current Value - Beginning Value) / Beginning Value = ROI

The current value can be one of two things: whatever amount the investment was sold for (its  realized value ) or whatever the investment is worth at the present time (like the  market price  of a  stock ). The beginning value is a historical figure: the price originally paid for the investment or the  cost price . 

We make investments to make money, so it's natural for an investor to wonder whether their investment paid off and by how much. That could be a person valuing how much a stock investment generated or a company analyzing the profitability of an acquisition or purchase of new equipment.

ROI can be calculated either by hand, calculator, or using software such as Microsoft Excel. Excel is generally a great program for doing calculations and keeping track of financial data.

You can calculate ROI in Excel using the following steps:

Open Excel and create a new spreadsheet

The first thing you need to do is switch on whatever device you plan to use and click on the green and white Excel icon. When the program opens, select create a new spreadsheet.

Label the cells

Before entering the data into the various cells in the spreadsheet, you’ll want to give these cells a name. For example, in cell A1 you could write “amount invested,” in cell B1 “amount gained from investment,” and in cell C1 "ROI." Entering these descriptions is good for record-keeping and will help to avoid confusion later.

To avoid potentially losing your work, make sure you save your Excel document regularly.

Now you can start inputting the various data required to make the ROI calculation. Using the above example, type the amount invested in cell A2 and the amount made from the investment in cell B2. These two figures are needed to compute the profit generated on the investment.

Input the formula

It’s now time to make the calculation. In the cell where you want the ROI to appear, type without any spaces = followed by the name of the cell where you put the amount invested, the forward slash sign (/), and the name of the cell where the amount made from the investment appears. Using the example above, you would type “=A2/B2” into cell C2.

Get the percentage

All that’s now missing is the percentage. To get the final result, click the % icon while highlighting the cell where the ROI appears. In our example, that would be cell C2.

Let’s imagine we recently sold an antique on eBay and wanted to figure out the ROI in Excel.

First, we need to label our cells. Let’s type “initial cost” in cell A1, “financial gain” in cell B1, and “ROI" in cell C1. Next, it’s time to input the data. In A2 we type 15, which was how much the antique initially cost when it was bought at a flea market 15 years ago, and in B2 we type 218, which was how much the antique was sold for, less the initial $15 invested and $8 billed postage cost.

All that’s left now is to calculate the ROI. In cell C2, type “=A2/B2,” press enter, and then click on the % icon. If everything went correctly, C2 should now read 7%. This is our ROI.

A positive aspect of ROI as a performance measure is that you can easily compare the total return of different investments. 

However, there are a few considerations to keep in mind. Sometimes in the basic ROI formula the "current value" is expressed as a "gain on investment." This isn't completely accurate. If you started with $100, and ended with $140, your gain on the investment is $40. But the current value is the entire $140. 

The other big one is that ROI only   measures from an arbitrary endpoint. It does not consider the time value of money , which is a critical element of return. This is especially clear if you look at the 2020 ROI of -18% in the table above. That is not a yearly change from the prior value of 2019. Rather, it's the total change measured from the start, in 2017. While it accurately reflects total return over the period, it doesn't show the annual return or the compounded rate of change.

How Do You Calculate ROI on an Investment?

ROI is calculated by dividing the financial gain of the investment by its initial cost. You then multiply that figure by 100 to arrive at a percentage.

What Is the Difference Between Irr and ROI?

Both return on investment (ROI) and internal rate of return (IRR) measure the performance of investments or projects. ROI tells you the total rate of return for an investment from the beginning to the end, or the present moment, whereas IRR reveals the annual rate of growth that an investment is expected to generate.

What Is a Good ROI Ratio?

That depends on a number of factors, including the type of asset and the length of time it was held. Some things are expected to grow in value, whereas other things generally deteriorate in value. In the case of stocks, a good benchmark to use would be an index like the S&P 500. A decent ROI would be anything above the return generated by the index. Time is also important as you need to account for inflation. $100 five years ago isn’t the same as $100 today.

Return on investment (ROI) is one of the most popular profitability metrics out there. It’s used by companies, big and small, as well as individuals to calculate the money they made off an investment.

Calculating ROI is simple, both on paper and in Excel. In Excel, you enter how much the investment made or lost and its initial cost in separate cells, then, in another cell, ask Excel to divide the two figures (=cellname/cellname) and give you a percentage.

Harvard Business School. " How to Calculate ROI to Justify a Project ."

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ROI (Return on Investment) Calculator

You can use our simple ROI calculator to quickly and easily estimate how much money an investment lost or gained during a defined period. The calculator also provides details of the annualized ROI in percentage terms.

You can use the ROI calculator to compute the ROI in five simple steps:

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Return on Investment Formula & Example

Example:  If you bought $ 10,000 worth of the stock on February 3rd 2016 and sold it for $ 12,000 on September 20th 2017, you would have a gain of $ 2,000 which is 20%.

You may also be interested in our ROIC (Return on Invested Capital) Calculator or T-Bill Calculator

• Start a Company > Business Plan > Business Plan Investment Description

Discussing Return on Investment in a Business Plan

Business Plan Investment Description

Investment and ROI go hand in hand. Great business plans go out of their way to demonstrate the ROI investors can expect if they make a positive funding decision. Here's what you need to know about investors' ROI expectations and how you should address them in your business plan.

One of the purposes of a business plan is to attract the attention of investors.

Investors are business professionals, but more than anything else they are interested in getting a solid return on their investment. If your business plan doesn't address ROI , investors will quickly lose interest in your company.

It might surprise you to learn that venture capitalists expect an average ROI of around 40%. Why so high? High returns are the reward for high risks. Since startups are some of the riskiest investments out there, the venture capitalist needs a high rate of return to offset the potential loss of his investment.

If you think your business is up to the task of delivering great returns for investors, here is the information you need to include a knowledgeable ROI discussion in your business plan.

ROI is the tool investors use to calculate the value of an investment. The higher the ROI, the greater the value your investment has in the venture capitalist's portfolio. For investors, there is a big difference between potential ROI and actual ROI. As the owner or major stakeholder in your business, you would like to base the ROI business plan discussion on best case scenarios, but investors are looking for ROI discussions that are rooted in hard numbers and business realities.

What factors affect ROI?

The factors that impact ROI are the VC's level of investment and anything that affects the profitability of your business. Revenues, expenses - whatever impacts your income statement will inevitably show up in your investors' ROI, so it's important to make sure your VC's capital is invested in profit-producing assets.

How do you calculate ROI?

Although there are a number of ways to determine ROI, the most common way to calculate ROI is to divide the investor's annual profit by the amount of the investment. If the investor receives $50,000 from a $150,000 investment, his ROI is 30% - okay, but still short of the 40% threshold many investors expect to receive.

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ROI Calculator

Updated: Jun 14, 2023, 11:30am

Investing is a long game, measured in years. Understanding your return on investment ( ROI ) can help you achieve your goals. It all depends on your rate of return, your time horizon, taxes and a host of other factors. Use Forbes Advisor’s return on investment calculator to help plan your long-term investing  strategy.

How to Use Our ROI Calculator

To get the most out of this ROI calculator, you’ll want to change the default inputs to reflect your financial situation and goals. Here are a few tips for some of the more complex fields in the calculator.

Use a Realistic Inflation Rate

Inflation is how much prices rise across the economy, eroding the purchasing power of your dollars over time. When you invest, you’re probably doing so at least in part to beat inflation and earn returns that help you maintain and grow your wealth.

The 2.9% default figure on this calculator is actually a pretty good average inflation estimate, and you might consider leaving it. Between 1925 to 2020, the Consumer Price Index (CPI), a common measure of U.S. inflation, rose 2.9% per year, on average. Just beware that some years see substantially more inflation, like 1980’s sky-high 13.5% rate.

Read more: Why Is Inflation Rising Right Now?

Input Your Income Tax Rate

This is the percentage of your income that goes to taxes each year. If you aren’t sure what tax bracket you’re in, you can find the federal guidelines here .

Keep in mind that for the sake of simplicity, this calculator assumes that you cash out your gains each year, creating taxable events that you must pay out at your current income tax rate. Most investors, however, are investing for the long term and won’t realize these gains every year. This allows them to benefit from lower long-term capital gains tax rates when they hold their investments for at least a year.

Consider Adjusting Your Contributions for Inflation

To keep the effective value of your contribution consistent across the years, you may want to check the “Inflation Adjustment” box.

This will update your annual contributions to keep track with rising inflation, and it may help you paint a more realistic picture of your future investment’s worth. It’s also a valuable reminder that your investment contribution rate shouldn’t be static—you should revisit it each year to make sure you’re putting away enough to meet your goals.

Look at the Calculator Values after Inflation

Whatever your investment goal might be, you probably know the cost of the thing today. But you might be less familiar with how much your goal may cost you after years or decades of inflation.

That’s why it’s helpful to check the “Show Values After Inflation” box. This will show you if by your end date you would have enough purchasing power to accomplish your goal based on today’s prices. If the answer is no, you may want to adjust your contribution rate.

Compare Simple vs Compound Interest

Compound interest is the engine that powers your investment returns over time. With compound interest , the amount you earn each year grows can be reinvested in your account to help you earn more.

Here’s how that can work: Say you have $1,000 to invest and you expect to earn 10% returns on it each year. The first year you earn $100. But the next year you earn $110, to reflect your investment account’s new base balance of $1,100. Over 10 years, you’d accrue almost $2,600.

Simple interest is different. With simple interest, your returns are always based on the starting balance of your account. This is essentially assuming you took out your profits every year and spent them, which you might do under certain circumstances, like if you were investing for income in retirement. Otherwise, you’ll probably want to avoid this situation as it can drastically undercut your returns.

Continuing the example from above, with simple interest, you’d wind up with about $600 less than if you invested with compound interest after 10 years. That’s because every year, you’re earning the same $100 that you did the first year.

Positioning yourself to benefit from compound interest is why it’s important to leave your money alone once it’s invested.

What Is a Good ROI?

Good ROI can be a subjective measurement. Most investors want to at least beat inflation with their portfolio. However, in many cases, a good measure for ROI on stocks is if they are beating the broader stock market.

Since the S&P 500 is often used as a benchmark for the broader market, many investors hope to beat this index’s average annual return. The average annual return for the S&P 500, when adjusted for inflation, over the past five, 10 and 20 years is usually somewhere between 7.0% and 10.5%.

This means that if your portfolio is returning better than 10.5%, you have a good ROI.

Return on Investment Calculator FAQs

What is roi.

ROI stands for return on investment. This number is used to determine the profitability of a given investment or basket of investments.

The goal of ROI is to determine the precise return of an investment given that investment’s cost.

How do you calculate ROI?

You can calculate ROI with the help of an investment calculator like the one we’ve provided above.

However, the general formula for ROI is the gain from the investment (GI) minus the cost of the investment (CI). Once this figure is determined, you divide it once again by the cost of the investment and multiply your answer by 100.

The formula can be written thus: [(GI-CI)/CI] x 100 = ROI.

How do I start investing?

To start investing, open a brokerage account or consider a robo-advisor . You’ll generally have to provide info like your name, age, address, Social Security number and income as well as connect a bank account. If you aren’t sure where to get started, check out our lists of the best brokerages and best investment apps.

How much money do I need to start investing?

Once upon a time, you needed a big bankroll to start investing. That’s no longer true, and nowadays you can start investing with as little as a few dollars. If you’re going to start with small amounts, you may be best served by a robo-advisor or investment app, though traditional brokerages like Charles Schwab and Fidelity now allow you to buy fractional shares of many stocks and exchange-traded funds (ETFs).

What goals should I invest for?

You can invest for pretty much any goal , from a home down payment to retirement . That said, experts recommend investing for longer-term goals to avoid having to withdraw your money when the market is experiencing any short-term dips. That’s a bigger risk if you invested to fund a goal you hoped to accomplish in less than three years.

Historically, the stock market has recovered from every downturn it’s experienced; it just may take it anywhere from a couple of months to a couple of years to recoup its losses. If you don’t have that time to wait, you’ll likely be better off with a high-yield savings account or certificate of deposit (CD) .

What kind of investment account do I need?

There are different investment accounts that can help you save for different types of goals.

•  If you’re saving for retirement, you’ll be best served by an individual retirement account ( IRA ) or a workplace retirement plan, like a 401(k) . •  If your goal is to prepare for a child’s college education, you may want a 529 account . •  If you’re trying to save for a shorter-to-mid-term goal (or you just want to build wealth in general and you’ve already maxed out your retirement accounts), you might opt for a taxable investment account .

What should I invest in?

Financial advisors typically recommend people invest in low-cost, diversified investments, like index funds and ETFs . These provide exposure to hundreds (or thousands) of individual investments, which helps you avoid putting all of your financial eggs in one basket while benefiting from the historic returns of the U.S. stock market.

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John Schmidt is the Assistant Assigning Editor for investing and retirement. Before joining Forbes Advisor, John was a senior writer at Acorns and editor at market research group Corporate Insight. His work has appeared in CNBC + Acorns’s Grow, MarketWatch and The Financial Diet.