1. Simple ROI formula
ROI % = ((Total return − Initial investment) ÷ Initial investment) × 100
Example: spend £10,000, get back £15,000 → ROI = ((15,000 − 10,000) ÷ 10,000) × 100 = 50%.
2. Payback period formula
Payback (months) = Initial investment ÷ Monthly net benefit
Example: £10,000 spend, £2,500 extra monthly profit → Payback = 10,000 ÷ 2,500 = 4 months. Lower is better; under 12 months is usually a green light for SMEs.
3. Annualised ROI formula
Annualised ROI = ((Total return ÷ Initial investment)^(1 / years)) − 1
Example: £10,000 in, £15,000 out over 2 years → ((15,000 ÷ 10,000)^(1/2)) − 1 = ~22.5% per year. The same total return spread over 5 years annualises to only ~8.4% per year — important context when comparing investments with different horizons.
Which formula should you use?
- Quick gut check → Simple ROI
- Cash-flow conversation → Payback period
- Comparing options over different time horizons → Annualised ROI
ROIify shows all three at once so you don't have to pick blind. For a fuller picture (tax relief, depreciation, running costs, risk scenarios) open the full industry modeler.