ROI and its blind spot
ROI = (Final value − Cost) ÷ Cost × 100. Turning 50,000 into 75,000 is a 50% ROI, whether that took one year or ten. That is the blind spot: ROI ignores time entirely.
This is why the annualized figure alongside it matters more for comparison. A 50% ROI over three years annualizes to about 14.5% a year, which is genuinely good. The same 50% over ten years annualizes to about 4.1%, which barely beats inflation.
Counting the true cost
The most common error is understating the cost side. For a rental property, include stamp duty, legal fees, renovation and maintenance, not just the purchase price. For a business project, include your own time at a realistic rate.
Also consider opportunity cost. An investment returning 6% when a risk-free deposit pays 5% has produced far less real value than the headline suggests.
Frequently asked questions
What is the difference between ROI and CAGR?
ROI is total return over the whole period with no time dimension. CAGR expresses that same growth as a steady annual rate, which makes it better for comparing across periods.
What costs should I include?
Everything you spent: purchase price, fees, taxes, maintenance, and a fair value for your own time on active projects. Omitting costs inflates ROI misleadingly.
Can ROI be negative?
Yes. If the final value is below the total cost, ROI is negative and represents the percentage of your investment lost.
What is a good ROI?
It depends on risk and duration. Compare against what a safe alternative would have paid over the same period, then judge whether the extra return justified the extra risk.
Does this account for inflation?
No, results are nominal. Subtract inflation from the annualized figure to get a real return.
Can I use ROI for marketing spend?
Yes, and it is standard practice. Enter campaign cost and attributed revenue, though attribution accuracy limits how much weight the number deserves.