ROI = (Net Profit / Investment) × 100
That's the formula. The hard part is defining "net profit" and "investment" correctly.
Step-by-step ROI calculation
Step 1: Calculate net profit Net Profit = Total Revenue from Investment − Total Costs Associated with Investment
Costs include: direct operating costs, staff time, overhead allocation, and opportunity cost of capital.
Step 2: Divide by the investment ROI = Net Profit / Investment Cost × 100
Example: You spend $50k on a content marketing campaign. Over 12 months, it generates $200k in attributed pipeline, which closes at 25% for $50k in revenue. Content production cost $10k additional in ongoing work.
- Net Profit = $50k − $10k = $40k
- ROI = $40k / $50k × 100 = 80%
Common ROI calculation mistakes
Mistake 1: Forgetting indirect costs Staff time spent managing an investment is a real cost. A $10k tool that takes 40 hours/month to manage has an additional $2,400/month cost at $60/hour.
Mistake 2: Using gross revenue instead of net profit ROI on gross revenue ignores COGS. If a campaign drives $100k in revenue but product costs $60k, net contribution is $40k — not $100k.
Mistake 3: Not annualizing A 50% ROI sounds great — but over 5 years, it's only 8.4% annualized. Always compare ROI over the same time horizon.
Calculate yours at the ROI Calculator.