Return on investment (ROI): definition, calculation and real examples

Because the commercial environment is always competitive, it is essential to understand how to measure return on investment (ROI) to ensure that your investments deliver positive results. ROI is a powerful indicator of financial performance, which allows companies to assess the profitability of their investments in relation to their costs. But what methods and strategies can really measure return on investment?

Definition of return on investment (ROI)

Return on investment, more commonly known as ROI, is a key indicator for assessing the profitability of an action or a project. It measures the ratio between the benefits obtained and the costs incurred, in order to determine whether the investment was worthwhile.

In concrete terms, ROI answers a simple but essential question: how much does what I have spent bring in? Whether we are talking about a marketing campaign, a digital tool or a training project, calculating return on investment helps to steer decisions and direct resources towards the most effective actions.

In business, ROI is often expressed as a percentage. A positive ROI means that gains exceed expenditure, while a negative ROI reveals a loss. But beyond the simple formula, this indicator reflects a culture of performance and measurement, which is indispensable in a context where every budget has to be justified.

ROI is therefore not just a number: it is a strategic tool for analysing the real value of an initiative and demonstrating its economic impact.

Why and when should you calculate return on investment?

Calculating return on investment (ROI) makes it possible, above all, to measure the real effectiveness of an action. In an economic context where resources are limited, every decision must be based on concrete data rather than intuition. ROI thus helps companies to assess the profitability of a project before, during and after its implementation.

Before an initiative is launched, estimating the potential ROI helps to confirm whether the investment is relevant. Should you invest in a new advertising campaign, in management software, in internal training or even in a fundraising round intended to support growth? By projecting the costs and expected benefits, decision-makers can compare several options and choose the most profitable one.

During implementation, regularly calculating ROI makes it possible to monitor performance: you measure what works, adjust what needs to be adjusted and optimise budgets.

Finally, once the action is complete, ROI becomes an evaluation tool after the fact. It makes it possible to learn lessons for future projects, to identify the most effective levers and to strengthen the culture of performance within the company.

How do you calculate return on investment?

The calculation of return on investment (ROI) is based on a simple formula, which compares the gains obtained with the expenditure incurred in order to give a clear view of the profitability of an action.

The general ROI formula

The basic ROI formula is as follows: ROI = ((Gain from the investment - cost of the investment) / cost of the investment) x 100.

This formula expresses ROI as a percentage. A positive ROI indicates that the investment brought in more than it cost. A zero ROI means that the project has simply broken even. A negative ROI reflects a financial loss. Its appeal lies in its simplicity: it can be applied to any type of project, whether a product launch, an investment in equipment or a digital campaign.

Example of an ROI calculation for a standard investment

For a company that invests €10,000 in a communication campaign and generates an additional €15,000 in turnover thanks to this action, the ROI will be +50%.

A return on investment of +50% means that the campaign brought in 1.5 times the amount spent. This indicator allows the company to measure the effectiveness of its strategy and to decide whether it is worth repeating or scaling up this type of action.

Example of an ROI calculation in property

In property, ROI is particularly useful for comparing the profitability of different assets.
Let us imagine that an investor buys a flat for €200,000 and lets it for €800 per month. Their annual costs (service charges, taxes, maintenance) come to €2,000. The annual income will therefore be €7,600 and the ROI 3.8%. This figure will make it possible to judge whether the investment is attractive compared with other financial investments.

What indicators complement ROI?

Although ROI is a benchmark indicator, it is not always enough on its own to assess the performance of a project. Other financial tools complement it, particularly when you want to factor in the time value of money, risk or the overall profitability of a company.

Internal rate of return (IRR)

The internal rate of return (IRR) measures the average annual yield of an investment over its whole life. Unlike ROI, which gives a snapshot, IRR takes into account the time dimension of financial flows. An IRR higher than the rate of return required by the company indicates that the project is financially attractive. It is an indicator widely used in sectors where investments are heavy and spread over time: property, energy, technological innovation, infrastructure and so on.

Net present value (NPV)

Net present value (NPV) makes it possible to assess the real added value of an investment, taking into account the passage of time and the cost of capital. It rests on a simple principle: a euro today is worth more than a euro tomorrow. Calculating NPV consists of discounting all of a project's future cash flows (income and expenditure), then subtracting the initial cost of the investment. If the NPV is positive, the project can be considered to create value. This indicator usefully complements ROI because it offers a more strategic view of long-term profitability, particularly for investments spread over several years.

ROIC, ROE, ROA: other financial indicators

Some companies also track financial ratios such as ROIC (Return On Invested Capital), ROE (Return On Equity) or ROA (Return On Assets). ROIC shows a company's ability to create value from the total capital employed (debt + equity). ROE focuses on the return to shareholders: the higher it is, the more profit the company generates for every euro invested. ROA, lastly, indicates the company's overall efficiency in using its assets to generate revenue.

Together, these indicators offer a complete picture of financial performance, well beyond simple ROI, and help to compare several projects or companies on a like-for-like basis. They also form a solid basis for drawing up a reliable financial diagnosis, which is essential to any investment decision.

Do you want to master financial analysis tools, assess the profitability of a project and steer the growth of a company? The Master Corporate Finance at EDC Paris Business School prepares you to become an expert in financial decision-making. Through an approach combining theory, practice and real case studies, you will learn to optimise investments, measure ROI and support the economic strategy of organisations in a constantly changing environment.

EDC Paris Business School also offers complementary programmes to develop broad expertise: the Master Audit, Control and Management to strengthen your performance management skills, the Master International Business to progress in a global context, and the Master Data Science & Business Analysis to harness the power of data in the service of strategic decisions.

ROI may not take into account all the factors that influence profitability, such as risk and market conditions. However, calculating the return on investment of a project before launching it is always strongly recommended, to help you make the best possible use of the resources available to you.