ROAS vs ROI: Differences, Formulas and When to Use Each

This guide explains both formulas, walks through a worked example and shows how to connect them with break-even ROAS.

The two formulas

ROAS = Revenue from ads ÷ Ad spend
ROI  = (Gross profit from marketing − Marketing costs) ÷ Marketing costs × 100

Where:

• Revenue from ads is the revenue attributed to the campaign.
• Ad spend is only the money paid to the ad platform.
• Gross profit is revenue minus the direct cost of goods or delivery (revenue × gross margin).
• Marketing costs include ad spend plus agency fees, tools, creative production and any other costs of the campaign.

Some businesses calculate ROI based on revenue instead of gross profit. That inflates the result, because it treats revenue as if it were profit. For decisions, the gross-profit version is more honest.

ROAS vs ROI at a glance

	ROAS	ROI
Measures	Revenue efficiency of ad spend	Profitability of marketing
Includes margins	No	Yes
Includes other costs	No	Yes
Typical format	4 : 1, 4x or 400 %	Percentage, for example 35 %
Best for	Comparing campaigns, ad groups, bidding	Budget decisions, channel comparisons, reporting to management
Available	Immediately in ad platforms	Requires margin and cost data
Risk	Looks good while losing money	Depends on accurate cost data

Worked example (hypothetical)

An online shop for kitchen equipment runs a search campaign for one month.

• Ad spend: €2,000
• Agency fee and tools: €500
• Revenue from the campaign: €9,000
• Average gross margin: 40 %

ROAS: €9,000 ÷ €2,000 = 4.5 : 1 (or 450 %)

ROI:

1. Gross profit: €9,000 × 0.40 = €3,600
2. Total marketing cost: €2,000 + €500 = €2,500
3. Profit after marketing: €3,600 − €2,500 = €1,100
4. ROI: €1,100 ÷ €2,500 × 100 = 44 %

Both metrics look positive here. Now change one assumption: the shop sells mostly low-margin items with a 20 % margin.

1. Gross profit: €9,000 × 0.20 = €1,800
2. Profit after marketing: €1,800 − €2,500 = −€700
3. ROI: −€700 ÷ €2,500 × 100 = −28 %

The ROAS is still 4.5 : 1, but the campaign now loses money. This is the most important lesson of the ROAS vs ROI comparison: ROAS alone cannot tell you whether you make a profit.

You can reproduce these calculations with your own figures in the marketing ROI, ROAS and CAC calculator, which shows ROAS, ROI, profit and break-even values side by side.

Break-even ROAS: the bridge between the two

Break-even ROAS tells you the minimum ROAS a campaign needs so that the gross profit covers the ad spend:

Break-even ROAS = 1 ÷ Gross margin

Gross margin	Break-even ROAS
15 %	6.7 : 1
25 %	4.0 : 1
35 %	2.9 : 1
50 %	2.0 : 1
70 %	1.4 : 1

This break-even only covers ad spend. If you also want to cover agency fees and tools, calculate the break-even revenue instead: total marketing costs ÷ gross margin. In the first example: €2,500 ÷ 0.40 = €6,250 of revenue needed to break even. The campaign produced €9,000, so it is profitable.

With break-even ROAS in hand, ROAS becomes a useful steering metric: as long as the campaign's ROAS stays comfortably above the break-even value, it covers its ad costs. The margin of safety you want above break-even depends on your other costs and goals.

When to use ROAS

• Optimising campaigns: comparing ad groups, keywords, audiences and creatives within one account.
• Bidding: many ad platforms offer bidding strategies based on a target ROAS.
• Quick checks: spotting campaigns that perform far below the others.

Make sure ROAS targets are derived from your margin, not copied from somewhere else. A target that works for a business with 60 % margin can be ruinous for one with 20 %.

When to use ROI

• Budget decisions: should we spend more, less or nothing on this channel?
• Comparing channels: paid search, social ads, email, trade fairs, each with their different cost structures.
• Reporting to owners or management: ROI answers the question they actually care about.
• Evaluating agencies and tools: their fees belong in the ROI calculation.

Beyond the first purchase

Both metrics usually look at revenue within a period. If customers buy again, the first purchase understates their value. For businesses with strong repeat purchases, consider:

• Calculating ROI with expected gross profit over a realistic period (for example 12 months).
• Comparing customer acquisition cost with customer lifetime value. Our guide on how to calculate customer acquisition cost explains both.

Be conservative with lifetime assumptions; optimistic lifetime values are a common way to justify unprofitable campaigns.

Attribution: where the revenue figure comes from

ROAS and ROI both depend on the revenue you attribute to a campaign. Ad platforms tend to count conversions generously, analytics tools use their own rules and your shop or CRM knows what was actually paid. Practical approach:

• Use ad platform ROAS for relative comparisons within the platform.
• Use your own revenue data (shop, CRM, accounting) for ROI and budget decisions.
• Tag non-ad links consistently with UTM parameters so you can compare channels fairly.

Common mistakes

Treating ROAS as profit. A ROAS above 1 : 1 does not mean the campaign is profitable.

Ignoring other costs. Agency fees, tools and creative production can turn a positive ROI negative.

Using revenue instead of gross profit for ROI. It hides thin margins.

Copying ROAS targets. Your break-even depends on your margin.

Comparing periods with different attribution settings. Changes in tracking or attribution models can change ROAS without any real change in performance.

How these metrics fit into your KPI set

ROAS and ROI are two of the core marketing KPIs for small business. Together with customer acquisition cost and conversion rate, they give you a complete picture from click to profit. If you are setting a budget for search ads, our guide to a Google Ads budget for small business shows how to use break-even ROAS in the planning stage.

Summary

In the ROAS vs ROI comparison, ROAS measures how efficiently ad spend produces revenue, while ROI measures whether marketing produces profit after all costs. Use ROAS for campaign optimisation, but always compare it with your break-even ROAS (1 ÷ gross margin). Use ROI, based on gross profit and all marketing costs, for budget and channel decisions. A campaign with a high ROAS can still lose money, and only the combination of both metrics shows the full picture.