Stop 10 · Monetization & Business MetricsTopics · 6/8

ROI Calculation

In short

ROI puts very different projects on one scale. A new onboarding flow and a new sales tool can be compared with the same simple ratio.

Return on Investment — (gain minus cost) divided by cost — a simple ratio used to compare very different initiatives on a common scale, even when it requires rough estimation.

The purple blob fixes a solar panel on a sunny rooftop beside a water tank.

Think of it like this

The rooftop solar panel

Solar panels cost money upfront. Each month, the electricity bill drops. Add up the savings over a few years, subtract the cost, divide by the cost. That ratio tells you if the panel was a smart buy.

Watch it happen

Comparing two projects

A: cost ₹10L

A: gain ₹25L

B: cost ₹4L

B: gain ₹8L

1/5ROI = (gain − cost) ÷ cost. Two projects compete for the same team.

The big ideas

What you need to know

The formula

(Gain − Cost) ÷ Cost. Express as a percentage. Simple enough for any slide.

Set a time window

Compare over the same period, like 12 months, or the numbers mislead.

Count people's time

Engineer time is usually the biggest cost. Include it, not just tool bills.

Mind the uncertainty

Estimated gains are guesses. Pair ROI with a confidence level.

See it in code

Walk through the code

excel

1A1: Cost (team + tools)   B1: 10000002A2: Gain in 12 months     B2: 25000003A3: ROI                   B3: =(B2-B1)/B14A4: Confidence            B4: 60%5A5: Risk-adjusted gain    B5: =B2*B46A6: Risk-adjusted ROI     B6: =(B5-B1)/B1

1/3Plain ROI: (25 lakh − 10 lakh) ÷ 10 lakh = 150%.

ROI with a simple confidence adjustment. Format B3 and B6 as percentages.

Save yourself the pain

Common mistakes

Oops

Leaving team salaries out of the cost.

Do this instead

Estimate people-time cost. It's often the largest part of a product investment.

Oops

Comparing a 3-month ROI with a 3-year ROI.

Do this instead

Use the same time window for every option.

Your mission

Rank three projects

~25 min

Quick check

A project costs ₹5 lakh and returns ₹15 lakh. What's the ROI?

Go deeper

1Calculate a rough ROI estimate for a feature idea using conservative assumptions.
2Learn why ROI estimates for product work are usually ranges, not precise numbers.
3Practice presenting an ROI estimate alongside its key assumptions, not as a bare number.