What's the difference between ROI and annualized return (CAGR)?

ROI is the total percentage gain over the entire holding period; CAGR converts it to a per-year compounding rate. A 50% ROI is excellent over 2 years (22.5% CAGR) and mediocre over 10 (4.1% CAGR). Use ROI for 'did this project pay off', CAGR for comparing anything held for different lengths of time.

Benchmark against the boring alternative: the S&P 500 has returned roughly 10% annualized over the long run (about 7% after inflation). An active investment of your money and time should beat that with room to spare for the extra risk and effort. For business spend, many teams demand 3-5× returns on marketing because attribution is uncertain and overheads aren't in the math.

Should ROI be calculated before or after taxes?

Be consistent — compare after-tax to after-tax. Taxes change rankings: a 12% pre-tax return taxed as ordinary income can net less than a 10% return taxed at long-term capital-gains rates. For decisions, after-tax is the truth; for quoting performance, pre-tax is the convention. Label which one you're using.

How do I calculate ROI on an investment with ongoing income?

Add the income to the final value: a rental bought for $200K, now worth $230K, that also produced $24K of net rent has a final value of $254K → 27% ROI. The simple formula still ignores when the income arrived — for big timing differences (most of the income early vs late), use the NPV/IRR calculator, which discounts each cash flow properly.

Yes — final value below cost gives a negative ROI; a total loss is −100%. One asymmetry worth internalizing: a −50% ROI needs a +100% gain just to break even. That's why downside protection matters more than upside chasing in long-horizon compounding.

Money & Finance · Free tool

ROI Calculator

Calculate return on investment as a percentage or dollar amount by entering cost, return, and time period. Instant, free results with no sign-up needed.

Updated June 2026

Initial cost ($)Final value ($)Years

ROI

50.00%

Net gain: $500

Annualized return

50.00%

Export:

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What it does

Calculate return on investment (ROI) as a percentage or dollar amount. Enter cost, return, and time period — done. Personal-finance decisions hinge on knowing the actual numbers, not the marketing claims.

Knowing the actual cost or yield of a decision lets you compare alternatives without falling for marketing. The gap between “rough estimate” and “defensible number” is exactly where good tooling earns its keep — the math is reproducible, but knowing which inputs matter and what the result means is half the work.

Compound interest is exponential, not linear; small contributions started early beat large contributions started late. A common pitfall: ignoring opportunity cost of large down payments or prepayments. Treat the tool’s output as a starting point and validate against authoritative sources for any consequential decision.

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Example input & output

Input

Initial cost: $10,000
Final value: $14,000
Years held: 3

Output

ROI: 40% (net gain $4,000)
Annualized return: 11.87%/year

40% over 3 years is not 13.3%/year — compounding means the equivalent annual rate is 11.87% (1.1187³ ≈ 1.40). Always compare investments on the annualized line.

How to use it

Enter the initial cost — everything you put in, including fees.
Enter the final value (or current value) of the investment.
Enter the years held to get the annualized return (CAGR).
Read ROI, net gain, and annualized return; export the rows if you need them in a spreadsheet.

How it works

Two formulas. Simple ROI: (final − cost) ÷ cost — total return over the whole holding period. Annualized return (CAGR): (final ÷ cost)^1/years − 1 — the constant yearly rate that would compound to the same result. ROI answers “how much did I make?”; CAGR answers “how fast?” — and only CAGR is comparable across different time horizons.

Common mistakes when using this tool

Dividing ROI by years. 40% over 3 years ≠ 13.3%/year. Compounding makes the true annual rate lower (11.87% here); the error grows with the horizon.
Ignoring costs along the way. Fees, taxes, maintenance, and your own time belong in “initial cost” (or subtracted from final value). Real-estate ROIs are the classic offender.
Comparing against zero instead of the alternative. A 6% CAGR is a win against cash and a loss against the index fund you'd have bought instead. ROI needs a benchmark.

When to use this tool

Comparing investments held for different lengths of time — the annualized (CAGR) line makes them comparable.
Evaluating a finished project or campaign: total in vs total out, in one number.
Sanity-checking a pitched return — 'we doubled in 8 years' sounds great until CAGR shows ~9%/year.
Business spend decisions where you can estimate cost and attributable return.

When not to use it

Investments with interim cash flows (rental income, dividends reinvested at different times, staged funding) — use the NPV/IRR calculator; simple ROI ignores timing.
Comparing raw ROI across different holding periods — 40% over 1 year and 40% over 6 years are wildly different; always look at the annualized line.
Marketing ROAS with attribution uncertainty — the formula is fine, but garbage attribution in means garbage ROI out.

Common use cases

Checking what a $10,000 stock position that's now worth $14,000 returned per year over 3 years.
Founder comparing the return of a $5,000 ad campaign vs a $5,000 contractor project.
Homeowner evaluating whether a $30,000 renovation that added ~$45,000 of value beat the market.
Comparing a fix-and-flip's 25%-in-9-months against an index fund's annualized return.

Frequently asked questions

What's the difference between ROI and annualized return (CAGR)?: ROI is the total percentage gain over the entire holding period; CAGR converts it to a per-year compounding rate. A 50% ROI is excellent over 2 years (22.5% CAGR) and mediocre over 10 (4.1% CAGR). Use ROI for 'did this project pay off', CAGR for comparing anything held for different lengths of time.
What's a good ROI?: Benchmark against the boring alternative: the S&P 500 has returned roughly 10% annualized over the long run (about 7% after inflation). An active investment of your money and time should beat that with room to spare for the extra risk and effort. For business spend, many teams demand 3-5× returns on marketing because attribution is uncertain and overheads aren't in the math.
Should ROI be calculated before or after taxes?: Be consistent — compare after-tax to after-tax. Taxes change rankings: a 12% pre-tax return taxed as ordinary income can net less than a 10% return taxed at long-term capital-gains rates. For decisions, after-tax is the truth; for quoting performance, pre-tax is the convention. Label which one you're using.
How do I calculate ROI on an investment with ongoing income?: Add the income to the final value: a rental bought for $200K, now worth $230K, that also produced $24K of net rent has a final value of $254K → 27% ROI. The simple formula still ignores when the income arrived — for big timing differences (most of the income early vs late), use the NPV/IRR calculator, which discounts each cash flow properly.
Can ROI be negative?: Yes — final value below cost gives a negative ROI; a total loss is −100%. One asymmetry worth internalizing: a −50% ROI needs a +100% gain just to break even. That's why downside protection matters more than upside chasing in long-horizon compounding.

See how this compares

Head-to-headShopify vs StripeShopify vs Stripe head-to-head: which for what kind of online business. Storefront vs payments-only, fees, integrations, setup time.

Show the math + sources

Formula

Simple ROI = (End − Start) / Start. Annualized (CAGR) = (End/Start)^(1/years) − 1.

What this assumes

Single lump-sum investment, no intermediate cash flows. Use IRR / XIRR for irregular contributions. Excludes taxes, fees, and inflation unless real-return mode is enabled.

Sources

SEC Investor.gov — Compound Interest + Investment Basics

Methodology last verified: 2026-04-30

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