Return on Investment (ROI) is the simplest measure of whether an investment paid off and by how much. It expresses the gain relative to the cost as a percentage — making it easy to compare very different investments on the same scale.
The Formula
ROI = ((Gain from Investment − Cost of Investment) ÷ Cost of Investment) × 100
Or equivalently: ROI = (Net Profit ÷ Investment Cost) × 100
Examples
Real estate: Bought land for Rs 20 lakh, sold for Rs 32 lakh.
- Net profit: Rs 12 lakh
- ROI: (12 ÷ 20) × 100 = 60%
E-commerce product: Bought stock for Rs 50,000, sold it all for Rs 78,000.
- Net profit: Rs 28,000
- ROI: (28,000 ÷ 50,000) × 100 = 56%
Marketing campaign: Spent Rs 30,000, generated Rs 90,000 in revenue.
- Net profit: Rs 60,000
- ROI: (60,000 ÷ 30,000) × 100 = 200%
Annualised ROI
Basic ROI doesn't show time. A 60% return over 5 years is very different from 60% over 6 months.
Annualised ROI = ((1 + ROI/100)^(1/years) − 1) × 100
60% ROI over 5 years: ((1.60)^(0.2) − 1) × 100 = 9.86% per year 60% ROI over 1 year = 60% per year
Always compare annualised ROI when comparing investments of different durations.
What Not to Forget in the Cost
Including all costs gives an honest ROI:
- Purchase price or capital invested.
- Transaction fees, commissions, brokerage.
- Taxes on gains.
- Ongoing maintenance or operating costs.
- Time cost (especially for active businesses or rentals).
Leaving out costs inflates ROI and leads to poor comparisons.
A Useful Benchmark
Compare your ROI against the opportunity cost — what you could have earned by putting the same money in the next-best option. In Pakistan (September 2026), high-yield savings and government securities are offering meaningful rates, so any investment should meaningfully exceed those risk-free returns to justify the additional risk.
Use ROI Calculator for any scenario. For comparing compound growth over time, see how compound interest grows your savings.
ROI vs IRR
ROI is simple and useful but doesn't account for the timing of cash flows. Internal Rate of Return (IRR) is more sophisticated and accounts for when money is invested and when it returns — making it better for comparing multi-year investments where returns come at different times. For most everyday business decisions (was this campaign profitable? did this product investment pay off?), basic ROI is sufficient. For large capital projects or comparing loan repayment scenarios with investment returns, IRR is more accurate. ROI Calculator handles the standard ROI calculation.
