Total versus annualised
| Invested | Returned | Years | Total ROI | Annualised | | --- | --- | --- | --- | --- | | 10,000 | 15,000 | 1 | 50% | 50% | | 10,000 | 15,000 | 5 | 50% | 8.4% | | 10,000 | 15,000 | 10 | 50% | 4.1% |
Same total return, three very different investments. The annualised column is the one to compare across options.
What ROI leaves out
It is a ratio, so it says nothing about size: a 300% return on 100 is 300, and a 20% return on a million is 200,000. It also ignores risk entirely — a high ROI that only materialised once tells you less than a modest one that repeats.
Honest inputs
The number that gets fudged is the invested figure. For a marketing campaign that means agency fees and staff time, not just ad spend. For a project it means the cost of everyone who worked on it. Leaving those out inflates the ratio without changing the money.
Questions
Why does the annualised figure matter?+
Because total ROI hides time. A 50% return is excellent over one year and mediocre over ten. Annualising converts both to a per-year rate, which is the only way to compare them. Quoting total return without the period is how bad investments look good.
How is annualised return calculated?+
As a compound annual growth rate: the nth root of the final over the initial value, minus one. It answers what constant yearly rate would produce the same result, rather than dividing the total by the number of years.
Does this account for inflation?+
No — these are nominal figures. A 6% return during 10% inflation is a real loss of about 4%. Run the result through the [inflation calculator](/t/inflation-calculator) to see it in today's money.
Can I use this for marketing spend?+
Yes, and it is the common case: invested is the campaign budget, returned is the revenue attributed to it. Be honest about attribution — counting revenue that would have arrived anyway is the usual way marketing ROI gets inflated.