Disclaimer: I am not the original author of this explanation and it’s been modified some over time. Credit to whomever influenced this piece with their writings in the past.

A lot of miners tend to misuse the term ROI, often confusing it with a break even period. In some cases it causes unnecessary frustration or confusion and while we are all trying to explain essentially the same things, expressing numbers correctly and understanding what they can do for us is important. Mining profitability is an exercise in number crunching and data analysis, so it helps to use the right terms.

Knowing the difference between ROI and break-even gives you another tool in evaluating the profitability of your operation and knowing how to properly calculate an ROI lets you compare it to the profitability of other investments.

Return on Investment:

ROI is the percentage of your initial investment that is paid off over some time interval. Oftentimes people use annual, or yearly ROI.

Consider a purchase of mining equipment for $10,000, and that equipment makes $25 per day in profit before electricity costs. With a daily energy cost of $15, the equipment generates $10/day x 365 days/year = $3,650/year. The annual ROI is the profit of $3,650 as a percentage of the initial $10,000 investment. So, annual ROI would be ($3,650/$10,000) x 100 = 36.5%.

(This example is a really good ROI rate compared to traditional investments and not necessarily representative of real statistics)

Break-even period:

The break-even period is the time it takes for mining equipment to make enough profit to cover it’s initial costs. When people talk about mining ROI, often this is what they’re referring to.

In the above scenario the initial cost was $10,000, and the profit was $10/day. The break even period is the number of days it takes for the equipment to make $10,000. So, the break-even period for this scenario is $10,000/$10 per day = 1000 days.

Obviously, your ROI and break-even periods will change on a daily or even hourly basis due to changes in coin price and difficulty. As you sell your mining profits be sure to keep accurate records of realized gains (or losses) to help track your total cost of ownership.