ROAS Vs ROI – Understanding the Key Differences in Marketing

It is essential for a business owner to measure not only expenses but also returns. When evaluating advertisement expenses, are you reflecting on the right metrics? It is ROAS vs ROI which are the main problem areas for many business owners like you. Which of the two is more critical? The reality is that both are essential. 

While ROAS measures revenue of all campaigns, ROI is concerned with deeper aspects of capital returns. This relates to the profitability of a business. Eliminating and ignoring one metric leads to an incomplete picture, meaning businesses suffer from uninformed decisions. 

That’s why we are here – so we can help you analyze these metrics, how to break down their formulas, and define which one to employ at specific moments in time. By the end of this article, you will be able to track both metrics and make effective decisions that will better inform the direction of your business. 

What is ROAS?

ROAS means the return on advertisement spend, a simple metric calculated as revenue produced from advertising in relation to the costs. 

One of its main advantages is measuring how much revenue is generated by advertisements for each dollar spent. It is very useful in measuring how effective advertisement campaigns are.

Understanding the Formula for ROAS: 

Here is the calculation formula for ROAS:  

ROAS = (Revenue Generated from Ads / Advertising Spend) x 100.  

The calculation in the example means that if you earn $100 through advertising while spending $40, your ROAS equals 250%. So, for every dollar spent, $2.5 was received.  

Why is Tracking ROAS Important?  

Tracking ROAS is important because the advertising revenue gives helpful information as to whether your ad campaigns are working or not. It answers very important questions like:   

Is my advertising spend delivering enough returns?  

Which campaigns are most effective?  

Should I increase or decrease the budget for a particular campaign?   

Knowing this can help determine how well your advertising is working in relation to your profits, where low returns indicate that your advertisers need to adjust their strategy.  

ROAS Formula Example.  

You can check net loss or profits with this metric but keep in mind that ROAS only indicates ad spending.

Step 1: Identify your audience and strategize a budget

Let’s say you intend to run a Facebook campaign to sell a product. Imagine a campaign aimed at women aged 25-35 who use fitness products. For this campaign, you have set a budget of $2,000.

Step 2: Make your advertisement and optimize it

Now, you turn your attention towards designing an ad that is highly engaging by incorporating relevant images, captivating text, and a clear CTA. In this case, tracking pixels will be utilized to determine if the ad is driving sales. 

Step 3: Determine total sums spent on advertising

After running the campaign, determine the ad spend for the platform and design costs for the ad as well. In our example here, you’ve reached a total of $2,500. 

Step 4: Analyze the revenue gained from it 

Now, you would want to check everything there is in revenue that can be pulled straight from the campaign. This includes all sales, even sales made after the initial purchase. If you ran your campaign, you would have pulled in $15,000.

Step 5: Calculating ROAS

Make sure you have calculated revenue generated from ads and advertising spending for the proper calculation of ROAS. 

Simply plug the numbers into:

ROAS = (Revenue Generated from Ads / Advertising Spend) × 100

Based on our example above, 

ROAS = ($15,000 / $2,500) × 100 = 600%

Understanding Results

This means for every dollar spent on advertising, the campaign returned 6 dollars, making the efficiency very effective. This indicates a good opportunity to scale the campaign or apply the same strategy elsewhere.

What to Consider When Calculating ROAS

Taking Google and Facebook as examples, ROAS is not limited to case ad spending and revenue income. For one to obtain a substantial insight into a business’s profitability or lack, all costs must be accounted for, including the following: 

 ✔ Google and Facebook’s advertisement platform costs

 ✔ Creative costs (designers, video production)

 ✔ Agency fees (if you outsource marketing)

 ✔ In-house team salaries (if staff managed your ads)

Not taking these costs into consideration can lead to misrepresentation of a campaign’s success. It’s also important to remember that having a high ROAS is useless if the company’s expenditures are far too great.

What is ROI (Return on Investment)?

Simply put, ROI measures your investment’s profit or loss.  Unlike ROAS, ROI measures revenues and all expenses, not just campaigning expenses. 

ROI will allow you to analyze how much profits are earned compared to the expenditure made and determine if funds are being wasted or profit is gained. ROI will give business owners a better idea, long term of the long-term unit or money spent.

How to Calculate ROI

The formula is simple:

ROI = (Net Profit ÷ Cost of Investment) × 100

ROI = ($5,000 ÷ $10,000) × 100

ROI = 50%

Net profit is your earnings minus all costs. The cost of investment includes everything spent on a campaign or project.

ROI Calculation Example

Imagine you invest $10,000 in a marketing campaign. After a few months, the campaign generates $15,000 in revenue.

Your total costs include:

• Ad spend: $3,000
• Staff salaries: $2,000
• Software & tools: $500

Step 1: Calculate Net Profit

Net Profit = Total Revenue – Total Costs
Net Profit = $15,000 – $10,000 = $5,000

Step 2: Apply the ROI Formula

ROI = (Net Profit ÷ Total Investment) × 100
ROI = ($5,000 ÷ $10,000) × 100
ROI = 50%

This means your marketing campaign generated a 50% return on investment, showing a strong return on your initial spend.

Things to Consider When Measuring ROI

ROI may look simple, but ignoring some factors could be misleading. Be sure to include the following.

• Production costs (Level of effort for video and graphic design, as well as content creation).
• Overhead expenses (Rent, utilities, and team salaries).
• Customer lifetime value (CLV) (A low ROI now might improve over time if customers return).

ROI can be much more complex, as it involves capital production and estimating CLV. After all, the goal is not just tracking revenues and costs – it is getting a real picture of your profitability. 

What’s a Good ROI?

Depends on your business type and goals. While some companies with a 5:1 return target settle for 2:1 ROI if the long-term customer value is higher. 

Rest assured, a good ROI means the investment is working and bringing profits. However, revamping or restricting the investment should be considered if the ROI is too low.

Key Differences Between ROAS and ROI

ROAS and ROI measure financial performance, but they serve different purposes. ROAS evaluates how efficiently your ads generate revenue, while ROI tells you whether your entire investment is profitable.

If you’re only looking at ROAS, you might assume a campaign is successful because it brings in revenue. But without ROI, you won’t know if that revenue actually covers all business expenses.

ROAS Focuses on Advertising Efficiency

ROAS measures the performance of your advertisements. It shows the revenue you receive versus each dollar utilized on ads. For example, spending $1,000 on ads while making $5,000 in sales gives you a ROAS of 5:1.  

Although useful, this metric alone doesn’t show whether you’re making a profit after considering additional costs, which reduces its importance.

ROI Provides a Bigger Picture

ROI looks beyond just ad revenue. It includes all costs, such as:
✔ Production costs (video, images, copywriting)
✔ Software & tools (analytics, email marketing)
✔ Salaries & overhead (team costs, office rent)

Because ROI includes every business expense, it gives you a real look at profitability. If a campaign has high ROAS but low ROI, it means other expenses are cutting into your profits.

Metrics Considered

Timeframe and Use Cases

ROAS: Best for Tracking Ad Performance in Real Time

ROAS is great for short-term analysis because it helps you:

• Compare ad channels (Google Ads vs. Facebook Ads)
• Optimize ad spend based on performance

Decide where to scale or cut the budget

If a campaign generates a 7:1 ROAS, you know it’s performing well. But without ROI, you won’t know if other costs are making it unprofitable.

ROI: Best for Long-Term Business Profitability

ROI looks at the big picture and helps you:

• Determine if a marketing strategy is truly profitable
• Compare different investments (ads vs. new hires vs. product launches)
• Plan budgets based on actual returns, not just revenue

For example, a new restaurant might spend heavily on ads to attract first-time customers. ROAS might look bad at first, but if those customers return over time, the ROI improves.

Which One Should You Focus On?

Track both.

• Use ROAS to optimize your ad campaigns.
• Use ROI to make sure your business is actually profitable.

ROAS helps you make quick ad decisions, while ROI ensures your overall strategy is sustainable.

Why Both Metrics Matter for Your Business

As a business owner, you can not depend on just one thing. You have to consider both ROI and ROAS. Here is why 

How ROAS Helps You Improve Ad Performance

ROAS is vital when it comes to managing expenditures on advertisements. It allows you to: 

✔ Determine which ads, platforms, and campaigns generate the greatest revenue.

✔ Tailor targets, bids, and creatives to your real-time data.

✔ Eliminate worthless ads before your budget is wasted.

As an example, consider having Facebook and Google Ads running at the same time, and say that Facebook has an ROAS of 8 while Google Ads has a ROAS of 3. 

This indicates that Facebook is earning more revenue for each dollar spent. However, does shifting your budget towards Facebook spending make sense? Not entirely – and that is because ROAS ignores other expenses.

How ROI Ensures Your Business is Truly Profitable

ROI is not limited to tracking advertisement spend; you can also use it to: 

 ✔ Evaluate whether your total investment in marketing pays off. 

 ✔ Weigh the impact of ads against staffing and new product launches. 

 ✔ Stop growing campaigns that increase revenue but do not provide sufficient profit.

Consider your Facebook campaign having an ROAS of 8, but the spending on designers, agencies, and tools is excessively high. If those expenses eat into your net profit, the ROI might be much lower than expected.

Practical Examples of ROAS and ROI in Action

Looking at ROAS (Return on Ad Spend) and ROI (Return on Investment) alone can be confusing, in which case referring to them in practice could be of help. 

The overall purpose of both metrics is best understood through a short-term ad campaign and a long-term investment advertisement, so refer to the two examples we’ve provided below for further clarification. 

Example 1: ROAS for a Social Media Advertising Campaign

Let’s say you are running an ad campaign on social media channels for a new product, such as sunglasses. You pinpoint the best-selling sunglasses to market to your target audience through ads on Facebook and Instagram for $5000. 

By the end of the campaigns, you had $25,000 in direct sales from Facebook’s and Instagram’s ads. 

To calculate your ROAS, you determine the revenue your advertising spend brings back to you by multiplying it by 100, so in formula terms:

Here the ROAS will be 500% 

This means that for every dollar that went into paying for ads, it resulted in $5 in sales revenue. A ROAS of 500 percent is a great result. 

Example 2: ROI for Launching a New Product

Let’s say you decide to spend money on starting a new product line that includes kitchen gadgets that are environmentally friendly. An estimation of total expenses incurred over the year is as follows:

• Product development = $15,000
• Marketing and advertising = $8,000
• Team salaries = $12,000
• Miscellaneous costs (e.g., tools, packaging) = $5,000

The total cost to invest in launching the product is $40,000. At the end of 12 months, the revenue generated from the product amounts to $60,000.

To calculate ROI, you use the formula:

If we use the ROI formula, the ROI here will be 50%. 

This information keeps you aware of making a decision whether to increase the scale of production, economize, or eliminate.

Why These Examples Matter

These case scenarios are practical examples of how you are using both ROAS and ROI in an account to measure the growth of your business: 

• A campaign with strong ad returns might still lose money if you offer heavy discounts or face high return rates.
• For many online stores, hitting over 400% in ad return sounds great—but only if your product’s profit margin supports it.
• When your average order size is small, you may need higher returns from ads just to break even.
• Looking at profit numbers can tell you when it’s time to scale up or pull back. Sometimes, it might even point to exploring new products.
• If you compare profits from multiple products, you will be able to get a clear idea of where you should give more effort. 
• You don’t need huge returns on ads if your customers keep coming back and making repeat purchases.
• Before you decide to increase your ad spend, make sure that both sales and profits are healthy. More spending can reveal problems you didn’t notice before.

Common Misconceptions About ROAS and ROI

• A lot of people think high ROAS means high profit. It doesn’t. If your costs are too high, you might still be losing money.
• ROAS and ROI often get confused. They sound similar, but ROI covers the full picture—including salaries, tools, shipping, and more.
• Instead of assuming every low-ROAS campaign flopped, ask what it was trying to do. Some ads are there just to get your name out.
• Too many marketers get obsessed with quick ROAS numbers and forget whether the customer will ever come back or buy again.
• ROAS can look steady for months, until it doesn’t. Platforms change, algorithms shift, and suddenly your numbers drop.
• People love to use fixed ROAS benchmarks. But what’s “good” varies by industry, product margin, and even audience intent.
• Seeing a high ROAS and doubling the ad budget may seem like a good idea, but it can cause audience fatigue and wasted money..
• ROI isn’t just for long-term planning. It’s useful for testing short bursts of activity and finding quick wins, too.
• It’s a mistake to think a high ROAS means the business is healthy. Sales numbers look nice, but support issues or bad reviews can still kill your business. 
• Some teams assume what worked last year will work again this year. But market trends change. So copying the previous strategy can be risky.
• Some forget that not every campaign leads to direct revenue. Instead, some campaigns can bring partnerships, press, or future traffic. 

When to Use ROAS vs ROI

Both ROAS (Return on Ad Spend) and ROI (Return on Investment) have their differences and are best in particular times of need.   

When looking at specific time periods or goals like short-term optimization of advertising campaign targeting or money allocation in a campaign, Return on Ad Spend works best. 

This is because ROAS gives a clear understanding of how much revenue is being brought in compared to how much revenue is being spent on ads.  

When assessing total product success or overall long term strategy success, ROI is the go-to option. This is because the ROI looks at profit from a wider perspective and uses total costs and revenues instead of focusing solely on advertisement spend. ROI is a big picture.  

ROAS can be used more to decide if those expenditures are profitable, proving that ads are working through increased cash flow. This is when combined with ROI that shows long-term cash flow, helps businesses understand gains from ad spending as compared to business expansion. 

Both help in understanding how to balance campaign results with business development smartly.  

Final Thoughts: Making Data-Driven Decisions

Keeping the business goals in mind, like growing profits and using advertising budgets wisely, helps in making better marketing decisions.

This is simply why focusing on either end of the spectrum leads to incorrect strategic moves.

To ensure sustainable growth, monitor both metrics, realign strategies based on actual profitability, and reinvest into what yields the best ROI. 

Utilize ROAS when evaluating short-term ad effectiveness, while ROI should be measured over an extended period. This balance ensures that your marketing budget is optimized for efficiency rather than effort.