I am kind of puzzled as various sources give either of those formulas to calculate ROI:

  1. Cost of Benefits /Cost of Investments
  2. (Gains - Investment) / Investment

The obvious problem that if I invest 1000 EUR and gained 1000 EUR, the first formula will yield ROI=100% while the second ROI=0%.

To me, the latter seems more natural as the investment did not bring anything, just paid for itself. But how people understand that, which way is more common?

A real life example: Test automation. Initial investment is high, about 18 000 USD. In the first release, it only brings modest saving (12 320 USD). The first formula gives ROI=68,5%, the second then ROI= -31,5%,


You need to recoup the investment and then earn more

For any investment to be worthwhile, you need to recoup the investment and then earn more. Here is the ROI (Return On Investment) formula from Investopedia:

ROI = (Gain from Investment - Cost of Investment) / Cost of Investment

However, typically, your investments will be one time while the returns will be recurring, such as in the Test Automation example you cited. So, you should estimate the benefits for 3 to 5 years, based on your assessment of how long the benefits will flow.

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