How to Calculate ROI (Simple + Compound) With Real Examples

ROI (Return on Investment) tells you how much you gained (or lost) compared to what you put in. It’s one of the fastest ways to sanity-check an investment, a side project, a piece of equipment, or a marketing spend.

If you want to skip the math and get an instant answer, you can run your numbers here:
ROI Calculator

The simple ROI formula

ROI (%) = (Gain − Cost) ÷ Cost × 100

Where:

Cost = what you put in (purchase price, ad spend, time/tools cost, etc.)
Gain = what you got back (sale price, revenue, payout, savings)

Tip: Whenever possible, use net gain (after fees and costs), not just revenue.

Example 1: Simple ROI (quick and common)

You buy equipment for $2,000 and later sell the output for $2,600.

Gain − Cost = 2,600 − 2,000 = $600
ROI = 600 ÷ 2,000 × 100 = 30% ROI

Simple ROI is great for quick comparisons — but it leaves out one huge detail:

ROI’s biggest weakness: time

A 30% ROI in 3 months is very different from a 30% ROI in 3 years.

That’s why people often use annualized ROI (or other time-aware metrics) to compare investments fairly.

Annualized ROI (when you need apples-to-apples)

A simple way to estimate annualized return is to convert your total return into a yearly growth rate.

Annualized ROI ≈ (End ÷ Start)^(1 ÷ Years) − 1

Example 2: Annualizing a return

You invest $10,000 and it grows to $13,000 over 3 years.

End ÷ Start = 13,000 ÷ 10,000 = 1.3
Annualized ≈ 1.3^(1/3) − 1 ≈ 9.1% per year (approx.)

This helps you compare:

investments with different timeframes
projects with different payback periods

Compound growth (how investing usually works)

Compound growth is what happens when gains are reinvested and “growth stacks on growth.”

Future Value = Principal × (1 + r)^t

Where:

r = annual growth rate
t = number of years

Example 3: Compound growth

You invest $10,000 at 7% per year for 10 years.

Future Value ≈ 10,000 × (1.07^10) ≈ $19,671
Gain ≈ $9,671
Total ROI ≈ 96.7%

If you’re doing longer-term investing, you’ll usually care more about compound growth than simple ROI.

Want to explore compounding directly?
Compound Interest Calculator

Monthly contributions (the quiet multiplier)

Many people invest a little each month. That changes everything.

When you add monthly contributions:

you’re compounding your original amount and
compounding a stream of deposits

This is where calculators become essential because month-by-month math gets tedious fast.

Run scenarios here:

Common ROI mistakes (that make results look better than reality)

Forgetting ongoing costs (subscriptions, maintenance, repairs, taxes)
Ignoring time (simple ROI is not “per year”)
Using revenue instead of profit (ROI should use net gain when possible)
Not including fees (transaction fees, interest, platform fees)
Comparing different durations without annualizing

Quick checklist: what to include in Cost and Gain

Include in Cost:

purchase price
setup costs
fees and interest
ongoing costs (if relevant)

Include in Gain:

sale price or payout
revenue minus expenses (if you’re measuring profit)
cost savings (if ROI is from saving money)

Run your numbers in 30 seconds

Use the DailyROI calculator to compute ROI instantly (simple ROI, and scenarios depending on your inputs):
ROI Calculator

FAQ

Is ROI the same as return (ROR)?

People use the terms interchangeably, but ROI is often a single overall percentage, while “return” may be expressed per year (annualized).

Is higher ROI always better?

Not always. Higher ROI can come with higher risk, more time, or more uncertainty.

Can ROI be negative?

Yes — if your gain is less than your cost, ROI is negative.

Should I use ROI for stocks?

ROI can be a useful snapshot, but it won’t capture volatility or risk. It’s best as a starting point.

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