What Is ROI?
ROI, or return on investment, is a financial measure used to evaluate how much profit or loss an investment generates compared with its original cost.
Businesses, entrepreneurs, investors, and small business owners can use ROI to compare different investments and understand whether the money invested generated a positive or negative return.
ROI Formula
For example, if you invest $10,000 and receive $12,500 from the investment, your net profit is $2,500. The ROI is 25%.
Why Is ROI Important for Small Businesses?
ROI can help small business owners evaluate spending decisions such as marketing campaigns, equipment purchases, software subscriptions, employee training, and other business projects.
Comparing ROI across different opportunities can provide a simple way to understand which investments may generate better financial returns.
How to Use the ROI Calculator
Enter your initial investment in the first field. Then enter the total amount you received or expect to receive from that investment in the second field.
Select the Calculate ROI button. The calculator will show your ROI percentage, initial investment, final return, and net profit.
Positive and Negative ROI
A positive ROI means the final return is greater than the original investment. A negative ROI means the final return is lower than the original investment.
For example, an investment of $5,000 that produces a final return of $6,000 has a positive ROI of 20%. An investment of $5,000 that produces only $4,000 has a negative ROI of -20%.
ROI for Business Decisions
ROI is useful as a starting point for evaluating business opportunities, but it should not be the only measure used for financial decisions. Factors such as investment duration, cash flow, risk, taxes, operating costs, and opportunity cost can also affect the actual value of an investment.
This calculator is intended for general informational and educational purposes. For important financial decisions, consider reviewing the results with accurate business records or a qualified financial professional.