[Articles](/articles.html)>[Business](/articles.html#business-articles)> How to calculate ROI
# How to calculate ROI
September 30, 2026 • 7 minutes
Written by[Ashley White](/blog/authors/ashley-white.html)
Reviewed by [Kathryn Uhles](/about/academic-leadership/dean-kathryn-uhles.html), MIS, MSP, Dean,[College of Business and IT](/about/colleges/college-of-business-and-information-technology.html)
Some business decisions start with a simple question: Is the outcome worth the cost? Calculating ROI can help companies determine whether a project, campaign or initiative answers this question.
## What is return on investment and why calculate ROI?
Return on investment (ROI) is a finance metric that compares the cost of an expenditure, also known as an investment, to its results. Companies calculate ROI to evaluate financial decisions. It’s traditionally shown as a percentage. Businesses can use this metric to assess projects, marketing campaigns, training programs, equipment purchases and other investments.
While this metric measures an investment’s overall return against its total cost,[accountants](https://www.phoenix.edu/articles/accounting/what-can-you-do-with-an-accounting-degree.html)may use other metrics to review financial performance. They include profit margin, or the percentage of revenue left after costs, and return on equity, which compares company income and shareholder ownership.
## How to calculate ROI with a basic formula
A basic calculation starts with knowing what gain an expenditure generated and what it cost to begin with. The formula to calculate ROI looks like this:
ROI = [(Total gain – total cost) / total cost] x 100
In this calculation, total gain refers to the money an investment or expenditure brought in. The total cost is the money a company spent on the investment. The difference between those numbers is known as the net return, which is divided by the total cost and multiplied by 100 to find the percentage.
This calculation can result in a positive or a negative result. A positive result means an investment made more money than it cost. A negative result means the investment cost more than it generated. If the outcome is zero, it means the investment broke even and had no gains or losses.
Companies may use this formula before or after making an investment. They can use projected costs and revenue to estimate the result, or they can plug in the actual costs and gains to show the real outcome.
### Example of how to calculate return on investment
An example can show how this formula works in practice: If a business spends $5,000 on a marketing campaign and it generates $6,100 in sales, company executives or stakeholders may want to know the campaign’s return on investment.
In this example, stakeholders can start by subtracting the campaign’s cost from the gains:
$6,100 – $5,000 = $1,100 in net return
Next, they can divide the net return by the total cost:
$1,100 / $5,000 = 0.22
Finally, they can multiply that number by 100 to determine the result:
0.22 x 100 = 22%
This hypothetical marketing campaign had a 22% investment return. It’s a 22% (or $.22 per dollar) ROI. In other words, it was a profitable campaign that made more money than it cost to produce.
## How to calculate ROI for different time periods
The results of a company’s investment may look different over time. In those situations, companies may calculate the annualized return, which shows the financial outcome as a yearly percentage. To find the[annualized return](https://www.finra.org/investors/investing/investing-basics/evaluating-performance), companies use this calculation:
Annualized return = (1 + return)(1 / years)– 1
For example, if a company buys new equipment for $20,000 and the equipment results in $24,000 in cost savings over three years, the investment generated a 20% return overall. With this information, the company can calculate the annualized return:
(1 + 0.20)(1/3)– 1 = 6.3% per year
This equation shows how the return is spread across the investment period.
Other factors, such as recurring costs, ongoing revenue streams and partial-period returns, can also affect how companies calculate ROI. As one example, if new software costs $2,000 to install and requires a $200 monthly subscription, a business can account for the ongoing expense when making the calculation. In this scenario, it can multiply the $200 monthly fee by 12 months to find the annual expense, then add that number to the $2,000 initial cost.
Businesses commonly use other measures, including payback period and return on assets, to add context to this metric. The payback period shows how quickly a business can recoup its original investment, while the return on assets can measure how a company uses its assets, such as equipment and inventory, to generate income. Together, the measures can provide a more complete picture of a company’s financial performance.
## What are the limitations of calculating ROI?
Companies can use the formula to forecast or assess the financial results of projects, purchases or investments. For example, a business may compare the cost of a customer relationship management software tool against its expected return to decide whether it’s worth purchasing.
Decision-makers in different departments can use this formula to compare costs and gains. In[project management](https://www.phoenix.edu/articles/business/what-is-project-management.html), it can be a useful metric for weighing a project’s expected return against the time, money and resources it may take to complete. Marketing teams can also use it to review whether a campaign’s results were worth the creative costs or ad spend.
While a higher percentage can indicate a positive return, it’s not the only factor for businesses to consider. Companies may also evaluate potential risks, strategic fit and available resources to decide whether to move forward with a project or investment.
Some business decisions go beyond dollar amounts. A project with a lower financial result may still be helpful for improving customer service or supporting staff development. For example, an employee training program may yield positive results that don’t immediately show up in sales or revenue figures. In those cases, a business may consider financial outcomes and other factors, like qualitative benefits or organizational priorities, to decide whether an investment is worthwhile.
When companies choose to calculate ROI for business decisions, it’s helpful to present the findings to stakeholders in a clear, easy-to-understand format. A report can outline the cost, net return and time frame, as well as the basic or annualized formula and a summary of the calculation.
## Learn more about how to calculate ROI and other business skills
Knowing how to calculate ROI can be a useful skill for evaluating business costs and financial outcomes in a variety of careers. If you’re interested in accounting, marketing or entrepreneurship, University of Phoenix offers the following[business programs](https://www.phoenix.edu/online-business-degrees.html):
- [Small Business Management and Entrepreneurship Certificate](https://www.phoenix.edu/online-business-certificates/small-business-management.html)
- [Associate of Arts with a concentration in Business Fundamentals](https://www.phoenix.edu/online-business-degrees/business-fundamentals-associate-degree.html)
- [Bachelor of Science in Accounting](https://www.phoenix.edu/online-business-degrees/accounting-bachelors-degree.html)
- [Bachelor of Science in Finance Technology](https://www.phoenix.edu/online-business-degrees/finance-technology-bachelors-degree.html)
Contact University of Phoenix, an accredited, online institution, to[request more information](https://www.phoenix.edu/request/request-information)about the programs.
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[Comparing a Master's in Finance vs. MBA Degree Online Degrees January 05, 2022 • 6 Minutes](/articles/business/comparing-a-masters-in-finance-vs-mba-degree)[Is It Too Late For Me To Get An MBA? Online Degrees October 01, 2024 • 6 minutes](/articles/business/is-it-too-late-to-get-my-online-mba.html)[Jobs in Supply Chain Management Online Degrees October 18, 2022 • 8 minutes](/articles/business/jobs-in-supply-chain-management)
### ABOUT THE AUTHOR
Ashley White is a freelance writer and content strategist specializing in education, professional development and careers. She has written hundreds of articles about workplace skills and career growth for national brands and employment platforms.
### ABOUT THE REVIEWER
Currently Dean of the College of Business and Information Technology, Kathryn Uhles has served University of Phoenix in a variety of roles since 2006. Prior to joining University of Phoenix, Kathryn taught fifth grade to underprivileged youth in Phoenix.
This article has been vetted by University of Phoenix's editorial advisory committee.
[Read more about our editorial process.](/blog/editorial-process.html)
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