Finance and profitability

Business ROI calculator

Work out the return, net benefit and payback period of an investment before you commit.

Compare what an investment costs (upfront and every year) with what it gives back in savings and extra profit. You get the ROI, the net benefit, how long it takes to pay back and a year-by-year cash view.

You will need

  • The upfront cost
  • Any yearly running costs
  • Expected savings and/or extra revenue per year
  • Your gross margin on that revenue

What you enter

  • Upfront investment – One-off costs to get started: purchase price, setup, implementation, training. Exclude GST you can claim back.
  • Recurring cost per year – Subscriptions, licences, support and maintenance each year. Leave blank if there are none.
  • Cost savings per year – Costs you will no longer pay: staff time, contractor fees, software you will cancel, errors avoided.
  • Additional revenue per year – New sales the investment brings in. Do not count savings here as well.
  • Gross margin on that revenue – The share of each extra dollar of revenue you keep after direct costs. Only revenue × margin counts as a benefit, so revenue is not overstated.
  • Analysis period – How many years of costs and benefits to include (1 to 10).

How it is calculated

Annual benefit = Cost savings + (Additional revenue × Gross margin). Total benefit = Annual benefit × Years. Total cost = Upfront investment + (Recurring cost × Years). Net benefit = Total benefit − Total cost. ROI = Net benefit ÷ Total cost × 100. Payback = Upfront investment ÷ (Annual benefit − Recurring cost), in months. Annualised return = (Total benefit ÷ Total cost)^(1 ÷ Years) − 1.

Assumptions

  • Benefits are net of the direct cost of delivering extra revenue (that is what the gross margin does), so revenue and savings are not double-counted.
  • Savings, revenue and recurring costs are the same every year and start straight away.
  • Amounts exclude GST. Tax, depreciation, financing costs and inflation are not included.
  • The payback period treats the annual net benefit as arriving evenly through the year.

Limitations

  • The result is only as good as your estimates of savings and revenue. Run a cautious case as well as an expected case.
  • It does not discount future dollars (no NPV), so long periods flatter the result. Keep the period realistic.
  • Benefits such as better customer experience or lower risk are real but are not counted unless you put a dollar figure on them.

All toolkit tools