ROI is the most universal business metric there is. Every campaign, hire, tool purchase, or strategic initiative can be evaluated with one question: did the return exceed the investment?
Simple in theory. In practice, most teams calculate ROI wrong by either missing costs or miscounting returns.
The ROI formula
ROI (%) = (Revenue - Investment) / Investment × 100
Net profit = Revenue - Investment. ROI tells you what percentage of the original investment you earned back as profit. A 150% ROI on a ₹1L investment means ₹1.5L net profit on top of recovering the original ₹1L, for total returns of ₹2.5L.
Return per ₹1 invested tells you the same thing in a more intuitive way: how many rupees came back for every rupee you put in.
Annualised ROI: the number that actually matters for comparison
A 200% ROI sounds fantastic. But is that over 6 months or 3 years? Context changes everything.
Annualised ROI = ROI % / Months × 12
If you earned 200% ROI in 6 months, your annualised ROI is 400% per year. If that same 200% took 3 years, annualised is only 67% per year. Both are positive, but the comparison tells you which investment was more capital-efficient.
This is the number to use when comparing two different investments with different time horizons.
What counts as good ROI
Marketing ROI: industry benchmark is 5:1 (₹5 returned for every ₹1 spent, which is 400% ROI). Below 2:1 (100% ROI) means the channel is losing money once you factor in overhead.
Hiring ROI: harder to measure but important. A salesperson costing ₹12L/year who brings in ₹60L of new ARR has a 5x return. Worth it. A salesperson costing ₹18L who brings ₹20L ARR is breakeven at best.
Capital investment ROI: A ₹50L manufacturing upgrade that reduces per-unit cost by ₹200 and you sell 3,000 units/month has annual savings of ₹72L. ROI in under 9 months.
My colleague Priya spent ₹80,000 on a Google Ads campaign for her online course. Revenue from that campaign: ₹3.2L. That’s a 300% ROI in 45 days. Annualised, it’s over 2,400%. Not every campaign performs like that, but it’s the right way to evaluate whether to run it again.
Common ROI calculation mistakes
Including revenue instead of profit: if your product costs ₹400 to make and sells for ₹1,000, your return isn’t ₹1,000 – it’s ₹600. Use net revenue minus direct costs as your “return” for an accurate picture.
Ignoring time: comparing a 6-month ROI with an 18-month ROI without annualising is misleading. Always annualise when comparing options.
Forgetting indirect costs: a ₹2L marketing campaign that consumed 40 hours of team time has a hidden cost of ₹40,000+ in salary. Include it.
Use with the gross margin calculator to make sure the revenue side of your ROI calc reflects actual contribution, not just top-line revenue.