A small business guide to calculating ROI

Every dollar your business spends should have a job: to bring more dollars back in. Whether you are eyeing a renovation, a marketing campaign or new staff training, relying on gut feel to make the decision is risky. You need proof that the expense is worth it.

Return on Investment (ROI) removes the emotion from your spending. Instead of guessing, it gives you a single, hard number that proves if an investment is growing your business or draining your cash flow.

Here is the formula to calculate it, and how to use it to make better, more profitable decisions.

How to calculate return on investment (ROI)

ROI is a percentage that shows how much profit you earned compared with what you spent. The formula is: ROI = (Net profit ÷ Cost of investment) × 100

Where:

• Net profit = Total return minus total cost
• Total return = The money left over after expenses

If you are looking for how to calculate ROI percentage, this formula gives you a clear number you can use to benchmark or compare business decisions.

Example: A cafe upgrading its coffee machine

A cafe invests $9,000 in a new coffee machine. Over the next year, thanks to the higher volume of cups served and improved quality of the brew, the upgrade generates $28,000 in additional revenue.

• Net profit: $28,000 – $9,000 = $19,000
• ROI: ($19,000 ÷ $9,000) × 100 = 211%

A 211% ROI shows that the upgrade delivered more than double the initial investment in its first year.

ROI made simple: Prospa free ROI calculator

Don’t do the math in your head. We have built a free ROI Calculator to help you run these numbers instantly. It includes a Comparison Tool so you can weigh up short-term wins (like marketing) against long-term investments (like renovations) side-by-side.

Start using the Prospa ROI Calculator. Simply enter your costs and expected returns to see your profit percentage calculated automatically.

How to improve your ROI

Improving ROI does not necessarily mean spending more. Often, small adjustments to pricing, operations or marketing deliver noticeable improvements. Here are practical ways for cafes and other small businesses to improve their ROI:

• Reduce unnecessary costs by switching suppliers or minimising waste.
• Improve margins by adjusting portion sizes or refining pricing.
• Optimise marketing with clear targeting and measurable campaign goals.
• Streamline operations to reduce wait times and increase customer throughput.
• Use data from POS systems and dashboards to identify strong and weak performers.

Common mistakes when calculating ROI

When learning how to calculate return on investment, it is easy to make errors that distort results. The formula is simple, but the variables can be tricky. When running your numbers, avoid these five common traps:

1. Focusing on revenue instead of net profit. A marketing campaign might bring in $10,000 in sales, but if it costs $9,500 to run, your actual return is negligible. Always use Net Profit.
2. Forgetting to include hidden costs. Installation fees, staff training, maintenance, subscriptions—don’t forget them.
3. Ignoring the time frame. ROI varies dramatically between one month and one year.
4. Overlooking risk factors. Seasonality, economic changes, weather, customer demand swings.
5. Ignoring long-term benefits. Training, branding and loyalty-building often have long-term ROI.

How to use ROI to make better decisions

Understanding how to calculate ROI gives you a measurable way to guide spending decisions. Instead of asking “Should I invest in this?”, you can ask “What will this return?”

1. Compare returns within the same category

Use ROI to compare marketing campaigns, software tools, renovation choices or any other competing ideas.

Example: Cafe marketing campaign comparison

Campaign A: Paid social ads

• Cost: $1,200
• Return: $3,000
• ROI: 150%

Campaign B: Local flyers and in-store signage

• Cost: $700
• Return: $1,000
• ROI: 42%

2. Compare returns across different investments

Once you have compared options within a category, you can prioritise based on the strongest potential return.

Example: Marketing campaign vs loan-funded renovation

Option A: Marketing campaign

• Cost: $1,200
• Return: $3,000
• Net profit: $1,800
• ROI: 150%

Option B: Loan-funded seating renovation

• Cost: $30,000
• Increase in annual net profit: $54,000
• Net profit after year one: $24,000
• ROI: 80% in year one
• ROI: 260% over two years

3. Make long-term planning more accurate

ROI helps focus on long-term returns, such as:

• Investing in equipment that improves service speed
• Increasing seating capacity
• Adding high-margin menu items
• Running targeted ads
• Adding online ordering

4. Improve profitability by identifying weak areas

ROI highlights what is working and what isn’t. If staff training consistently improves efficiency and sales, its ROI may exceed that of new menu items. You can also use cash flow forecasting tools and dashboards to guide decisions.

Option A: New menu items

• Cost to develop: $800
• Return over eight weeks: $2,000
• Net profit: $2,000 – $800 = $1,200
• ROI: 150%

Option B: Staff training

• Training cost: $2,500
• Return over six months: $32,400
• Net profit: $32,400 – $2,500 = $29,900
• ROI: 1,196%

5. Reduce risk by removing emotion from decisions

ROI provides a structured way to evaluate investments. It removes bias, supports clearer conversations with staff, partners and investors, and helps justify decisions using data rather than instinct.

Option A: Using ROI to reduce emotional decision-making

• Helps eliminate guesswork and bias.
• Supports clearer communication with stakeholders.
• Uses measurable outcomes rather than instinct.
• Example: “This renovation is expected to return 80% in the first year and 440% over three years.”

Option B: Loan-funded renovations (over three years)

• Loan-funded investment: $30,000
• Increase in annual revenue: $54,000
• Net profit after year one: $54,000 – $30,000 = $24,000

ROI calculation:

• ROI = ($24,000 ÷ $30,000) × 100
• ROI: 80% in the first year
• ROI: 260% over two years (net profit $78,000)
• ROI: 440% over three years (net profit $132,000)

When a loan funds an upgrade that boosts capacity or improves efficiency, the investment can generate substantial returns and continue compounding year after year.

Small business loans to fuel ROI

If you have identified an opportunity with strong ROI potential but cash flow is holding you back, a small business loan can help unlock it. Funding can fast-track renovations, equipment upgrades or marketing initiatives that drive long-term growth.