What Is Return on Investment (ROI)? Formula & Example

The ROI Formula

ROI = (Gain − Cost) ÷ Cost × 100

Cost is what you put in, like ad spend, an app fee or a discount. The gain is the profit that spend brought in, after you've paid for the products and shipping. Pull both from the same date range.

Ad platforms often show ROAS (return on ad spend) instead. ROAS is sales divided by ad spend. It leaves out what your products cost, so it isn't ROI.

One Ad Campaign, Three Different ROIs

A candle store spends $1,500 on ads in one month. The ad account credits the ads with 120 orders at $50 each. That's $6,000 in sales, or a ROAS of 4.

Using sales as the gain: ($6,000 − $1,500) ÷ $1,500 = 300%. But much of that $6,000 was never the store's to keep.
Using profit: candles, boxes and shipping cost $3,000, so the gain is $3,000. ($3,000 − $1,500) ÷ $1,500 = 100%.
Counting only new orders: say 40 of those buyers were regulars who would have ordered anyway. Each order leaves $25 of profit ($3,000 ÷ 120). The ads really added 80 × $25 = $2,000. ($2,000 − $1,500) ÷ $1,500 = 33%.

Same spend, same month, and the answer runs from 300% down to 33%. The last one is closest to the truth.

No report tells you how many buyers would have come anyway. You estimate it by comparing against a holdout, a group of shoppers who never see the ad or offer.

When the Investment Is a Discount

A discount never sends you a bill, so it's easy to forget it's a cost. The investment is the money you give up on every discounted order, including orders from people who would have paid full price.

Say you offer 15% off, and the average order is $60. Each use costs you $9. If 200 orders use the code, you've invested $1,800. If 150 of those shoppers would have bought anyway, $1,350 went to people who didn't need a push. The profit from the 50 new orders has to cover the whole $1,800.

So who sees the offer matters. Growth Suite, our app, is built on that idea. It saves its offers for walk-away customers, not dedicated buyers. For the full math, see our guide to measuring discount ROI.

Where the ROI Numbers Live in Shopify

You'll usually pull the numbers from a few places:

Sales and orders: Shopify's Analytics reports.
Product costs: the "Cost per item" field on each product. Once it's filled in, Shopify can show gross profit.
Discount cost: the discounts figure in Shopify's sales reports.
Ad spend: your Meta, Google or TikTok ad accounts.
App fees: your Shopify bill.

Ad accounts and Shopify credit sales in different ways, so their numbers often differ. Pick one source for the gain and stick with it.

ROI Has No Clock in It

ROI doesn't say how long the money took to come back. A 40% ROI in two weeks beats a 40% ROI that took a year. So only compare ROI figures that cover the same stretch of time.

You can also judge too early. Some first-time buyers come back later at full price, and a first-order ROI misses them. Count those repeat orders once they happen, not as a guess.

Related Terms

Gross Profit: sales minus product costs.
Cost of Goods Sold (COGS): what the products you sold cost you.
Revenue Attribution: how a sale gets credited to an ad, email or offer.
Breakeven Point: the sales level where your costs are just covered.
Customer Lifetime Value (CLV/LTV): what a customer is worth over all their orders.
A/B Testing: splitting shoppers into groups, one of which can be your holdout.