Someone says they made a 50% return and someone else says 40%. Who did better? It depends on a question ROI does not ask by itself: how long did it take? ROI is a fast, flexible measure, and that is exactly why it is easy to bend. A few extra lines of working make it honest.
The formula
ROI is the gain as a share of the amount put in: ₹25,000 ÷ ₹50,000 = 50%.
Time changes everything
Compare two options. Project A turns ₹50,000 into ₹75,000 in 5 years. Project B turns ₹20,000 into ₹28,000 in 2 years. A has the bigger ROI, but it is also much slower.
A wins on total ROI (50% against 40%), but B earns more than twice as much per year. The yearly rate is (1 + ROI)^(1 ÷ years) − 1.
- 1Compute total ROIFor B: (28,000 − 20,000) ÷ 20,000 = 0.40.
- 2Add 1 and take the root1.40 raised to 1/2 (the square root) is 1.1832.
- 3Subtract 10.1832, or 18.3% a year. This is the CAGR.
This yearly figure is the same one used in CAGR. Money that works faster can be reinvested sooner, which is why speed matters as much as size.
Count every cost
A flat bought for ₹40 lakh and sold for ₹52 lakh four years later looks like a 30% gain. But buying and selling costs, repairs and brokerage came to ₹3.2 lakh. The honest gain is ₹52 − ₹40 − ₹3.2 = ₹8.8 lakh.
The headline gain of ₹12 lakh shrinks to ₹8.8 lakh after costs.
A 30% headline becomes 22% after costs and only about 5.1% a year, which is below 6% inflation.
With 6% yearly inflation the sale price buys what ₹41.2 lakh buys today. That is barely above the purchase price, so after costs the real result is a small loss. See the inflation guide for how this adds up.
ROI is not ROAS
In marketing, ROAS (return on ad spend) is revenue divided by what you spent on ads. It ignores the cost of making the product, so a high ROAS can hide a thin profit. ROI counts profit.
ROAS = 3.5 ÷ 1 = 3.5×. ROI = profit ÷ cost = 0.4 ÷ (2.1 + 1.0) ≈ 13%, or 40% if you count only the ad spend as the investment. Always say which cost base you use.
Always name the measure and the cost base when you quote a percentage.
Quick practice
- Buy for ₹80,000, sell for ₹92,000. ROI? 12,000 ÷ 80,000 = 15%.
- It took 3 years. Yearly rate? 1.15^(1/3) − 1 = 4.8%.
- Spend ₹10,000 on ads, get ₹40,000 revenue. ROAS? 4×.
- Which is better: 20% in 1 year or 50% in 3 years? 50% over 3 years is 14.5% a year, so the 1-year 20% wins.
ROI is a start, not a verdict. Add time, count all the costs and compare against what the money could have earned elsewhere.
Questions people ask
What is the ROI formula?
ROI = (final value − amount invested) ÷ amount invested, shown as a percentage. Include all costs in the amount invested.
What is a good ROI?
It depends on time and risk. Compare the yearly rate with safer alternatives such as fixed deposits and with inflation.
How do you annualise ROI?
Use (1 + ROI)^(1 ÷ years) − 1. For a 50% ROI over 5 years that is 1.5^0.2 − 1 = 8.4% a year.
What is the difference between ROI and ROAS?
ROAS divides revenue by ad spend. ROI divides profit by total cost. ROAS can be high while ROI is small.
Can ROI be negative?
Yes. If you end with less than you put in, the ROI is negative. Losing half your money is an ROI of −50%.
Why is ROI misleading?
It ignores how long the money was tied up, risk, and often hidden costs. Use the yearly rate and net figures for fair comparisons.