How to calculate ROI
Return on investment tells you how much you gained or lost compared with what you put in:
ROI = (Amount returned − Amount invested) ÷ Amount invested × 100Example: you invest ₹1,00,000 and get back ₹1,50,000. Your gain is ₹50,000, so ROI = 50,000 ÷ 1,00,000 × 100 = 50%.
Why annualised ROI matters
A 50% return sounds great, but over how long? 50% in one year is excellent. 50% over ten years is about 4.1% a year, less than a fixed deposit. Annualised ROI (also called CAGR, compound annual growth rate) turns any time period into a yearly rate so you can compare investments fairly:
Annualised ROI = (Amount returned ÷ Amount invested)^(1 ÷ years) − 1Using the example above over 3 years: (1.5)^(1/3) − 1 = 14.47% per year.
Marketing ROI vs ROAS
Marketers use two related numbers, and mixing them up is one of the most expensive mistakes in advertising:
| Metric | Formula | What it tells you |
|---|---|---|
| ROAS | Revenue ÷ Ad spend | How much revenue each ₹1 of ads brings in |
| Marketing ROI | (Gross profit − Ad spend) ÷ Ad spend | Whether the campaign actually made money |
| Break-even ROAS | 1 ÷ Gross margin | The minimum ROAS needed to not lose money |
A “4x ROAS” can still lose money. If your gross margin is 20%, every ₹100 of sales earns only ₹20 of profit, so you need a ROAS of at least 5x just to break even. Always enter your margin in the Marketing ROI mode. That’s the number that tells you whether to scale a campaign or stop it.
What is a good ROI?
- Investments: compare with a benchmark. Indian equity indices have historically returned roughly 10–13% a year over long periods, and fixed deposits around 6–7%.
- Marketing: a 5:1 revenue-to-spend ratio (5x ROAS) is a common benchmark, but what really counts is a ROAS above your break-even point.
- Business projects: the ROI must beat your cost of capital (the interest you’d pay, or the return you’d give up).