How do you calculate ROI?

ROI = (Net Return − Cost of Investment) ÷ Cost of Investment × 100. For example: you spend $5,000 on ads and generate $12,000 in net profit from those ads. ROI = ($12,000 − $5,000) ÷ $5,000 × 100 = 140%. Always use net profit (after COGS), not gross revenue, in the numerator.

What is a good ROI for a marketing campaign?

The industry benchmark for marketing ROI is a 5:1 ratio — earning $5 for every $1 spent, which equals 400% ROI. An ROI of 2:1 ($2 per $1 spent) is generally considered break-even once overhead is factored in. Email marketing typically achieves the highest marketing ROI at $42 per $1 spent (4,200%).

How do I calculate ROI for a new hire?

Hiring ROI = (Revenue generated by hire − Total compensation cost) ÷ Total compensation cost × 100. Total compensation includes salary, benefits, payroll taxes (≈15–25% of salary), equipment, training, and management time. A hire generating $200,000 in revenue at a total cost of $100,000 yields a 100% ROI.

What is annualized ROI and when should I use it?

Annualized ROI adjusts for time so you can compare investments with different durations. Formula: Annualized ROI = ((1 + ROI)^(1÷years)) − 1. For example: a 50% total ROI over 3 years = ((1.50)^(1/3)) − 1 = 14.5% per year. Use annualized ROI whenever comparing investments with different time horizons — a 100% ROI over 10 years is far worse than a 100% ROI over 1 year.

How to Calculate ROI on Anything: Marketing, Hiring, and Tools

5:1

Average marketing ROI benchmark

$42

Average email marketing ROI per $1 spent

Break-even ROI — below this you're losing money

📐 The ROI Formula

Return on Investment (ROI) measures the efficiency of any business decision. The basic formula:

🔑

The Formula

ROI = (Net Return − Cost of Investment) ÷ Cost of Investment × 100
Or equivalently: ROI = (Gain from Investment − Cost) ÷ Cost × 100

Example: You spend $5,000 on Google Ads and generate $22,000 in revenue. Net profit from that revenue is $12,000.

Input	Value
Ad spend	$5,000
Revenue generated	$22,000
Net profit (after COGS)	$12,000
ROI	($12,000 − $5,000) ÷ $5,000 × 100 = 140%

📊 ROI by Business Decision Type

📣

Marketing Campaign ROI

Campaign cost:$10,000

Leads generated:200

Conversion rate:10%

Avg. customer value:$800

Revenue = 20 customers × $800

ROI: 60%

👤

New Hire ROI

Salary + benefits:$85,000/yr

Revenue generated by hire:$210,000/yr

Net value added:$125,000

($125K − $85K) ÷ $85K × 100

ROI: 47%

🛠️

Software Tool ROI

Annual tool cost:$3,600

Hours saved/month:20 hrs

Your hourly value:$75/hr

Annual time value saved:$18,000

($18K − $3.6K) ÷ $3.6K × 100

ROI: 400%

✅ What Is a Good ROI?

ROI	Interpretation
Below 0%	❌ Losing money — stop or pivot
0–10%	⚠️ Marginal — barely worth it
10–50%	🟡 Acceptable, worth optimizing
50–200%	✅ Good — double down
200%+	🚀 Excellent — scale aggressively

⚠️

Time Changes Everything

A 50% ROI over 5 years is worse than a 50% ROI over 1 year. Always factor in the time horizon. Annualize ROI when comparing investments with different timeframes: Annualized ROI = ((1 + ROI)^(1/years)) − 1

💡

Include Hidden Costs

For accurate ROI, include all costs: staff time to manage a campaign, onboarding time for a new tool, training costs for new hires. Underestimating cost is the #1 reason ROI projections are overly optimistic.

🎯 Key Takeaways

ROI = (Net Return − Cost) ÷ Cost × 100
Any ROI above 0% is technically profitable — but aim for 50%+ for most business decisions
Email marketing ($42 return per $1) and SEO have some of the highest marketing ROIs
Always include hidden costs: time, training, management overhead
Annualize ROI when comparing decisions with different timeframes