What Is ROI? How to Calculate Return on Investment
The formula, the variations, and the mistakes that make ROI misleading
By the Monthly Income Booster editorial team · Updated · How we research and fact-check
On this topic
Return on investment measures what you got back relative to what you put in. Net gain divided by cost, expressed as a percentage. It is the simplest way to compare two very different opportunities.
The Formula
ROI = (Gain − Cost) ÷ Cost × 100. Spend $500 on inventory, sell it for $1,250, and ROI is 150%.
Why Time Matters
A 150% return over one month and over five years are wildly different. Annualize before comparing, or the shiny number lies to you.
Include Your Time
Side hustle ROI that ignores hours worked is fiction. Count your hours at a rate you would accept elsewhere, and many "profitable" hustles turn negative.
Cash-on-Cash Return
For leveraged investments like rentals, cash-on-cash — annual cash flow divided by cash invested — is more useful than plain ROI because it reflects what your own money earned.
Official sources
Tax rules, limits and pay data change. Check the current figures with the primary source before acting on them.
Frequently Asked Questions
What is a good ROI?+
It depends on risk and time. Stock market averages are roughly 7–10% annually, while a small business or side hustle is usually only worth the risk above 20%.
How do I calculate ROI on a side hustle?+
Subtract all costs including the value of your time from total revenue, then divide by those costs. Anything under your normal hourly rate means the hustle is paying you less than a job would.
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