BUSINESS SPEAK · ROI
ROI: Return on investment
How much you gained compared with what you put in.
What it means
ROI is (what you got back − what you put in) ÷ what you put in. Because a 50% return over 1 year is very different from 50% over 10, also look at the return per year.
Where you’ll meet it
- Use ROI to compare a marketing campaign, a new machine or a rental property on the same footing.
- For uneven cash over many years, IRR gives a fairer yearly rate.
Worked example
Scenario: You invest 10,000, receive 1,000 in income, and sell for 13,000 after 3 years.
- Gain: 13,000 + 1,000 − 10,000 = 4,000
- ROI: 4,000 ÷ 10,000 = 40%
- Per year: 1.4^(1/3) − 1 ≈ 11.9%
Answer: Total ROI is 40%, about 11.9% a year.