What Is ROI and How to Calculate It

Updated 2026-08-31 · ProfitKit

Return on investment measures profit against the money you had to put in. Margin measures profit against the money you took out. Sellers who buy stock need both, because they answer different questions about the same sale.

The formula

ROI % = Net profit ÷ Cost of investment × 100

For a product purchase, the investment is what you spent to get one sellable unit — landed cost — and the profit is what remains after all selling costs.

Worked example

You buy a unit for $14 landed, sell it for $39, and pay $9.60 in platform fees, fulfilment and postage.

• Net profit: $39 − $14 − $9.60 = $15.40
• Margin: $15.40 ÷ $39 = 39.5%
• ROI: $15.40 ÷ $14 = 110%

Both are correct. Margin says two-fifths of the sale price is profit. ROI says every dollar of stock money came back with $1.10 attached.

Why ROI matters more when cash is tight

If you have limited money to buy stock, ROI tells you how hard that money works. Compare:

With $400 to spend: 40 units of A returns $320 profit; 10 units of B returns $200. A wins on the money you actually have — provided you can sell 40 units.

The part ROI leaves out: time

A 60% ROI in one month is not comparable to a 60% ROI over nine months, but the formula treats them identically. If your stock money can recycle several times a year, speed matters as much as the percentage. A rough way to see it:

Annualised ROI ≈ ROI % × (12 ÷ months to sell through)

50% ROI in two months annualises far above 90% ROI in twelve. Slow-moving stock with a beautiful ROI can still be the worse use of limited cash.

Use them together

Margin protects you against pricing that cannot survive its own fees. ROI protects you against spending cash badly. Screen a product on ROI, sanity-check the price on margin, and check the sell-through assumption before you order in volume.

Do the calculation