ROAS is the revenue your ads bring in divided by what you spent on them. ROI is the profit you make divided by what it cost you. ROAS tells you how much revenue each ad dollar returns, and ROI tells you whether you kept any money once the product and the ads are paid for.
The gap between them is your margin. A ROAS of 3 can be a 20% ROI for one business and a loss for another.
What is ROAS?
ROAS, or return on ad spend, is revenue from ads divided by ad spend. Spend $500 on ads that bring in $2,000 of sales and your ROAS is 4, also written 4:1 or 400%.
ROAS only looks at revenue. It does not know what the product cost you to make, ship or refund. What is ROAS covers the formula and how ad platforms decide which sales to credit.
What is ROI in advertising?
ROI, or return on investment, is profit divided by cost. For ads, the usual version is the gross profit from ad sales minus ad spend, divided by ad spend.
ROI = (gross profit from ad sales − ad spend) / ad spend
Gross profit is revenue minus the costs that come with each sale, such as the product, shipping, payment fees and returns.
Say you sell a $40 desk lamp that costs you $24 per order. You spend $600 on ads and they bring in $1,800, or 45 lamps. Gross profit is 45 × $16 = $720. Take away the $600 of ads and you keep $120. ROI is $120 / $600 = 20%.
Some businesses use a wider ROI that also subtracts fixed costs, such as the creative you paid for or the tools you use to manage ads. That version answers whether advertising as a whole is worth it.
What is the difference between ROAS and ROI?
The difference between ROAS and ROI is that ROAS measures revenue per ad dollar, while ROI measures profit per ad dollar. ROI takes the cost of the product into account and ROAS does not.
That leads to a few practical differences:
- ROAS is always zero or above. ROI can be negative.
- ROAS usually appears as a ratio such as 4:1. ROI usually appears as a percentage.
- You can read ROAS straight from an ad platform. ROI needs your own cost numbers.
- A ROAS target has to change with each product's margin. An ROI target can stay the same across products.
How do you convert ROAS to ROI?
To convert ROAS to ROI, multiply ROAS by your gross margin and subtract 1.
ROI = ROAS × gross margin − 1
For the desk lamp, the gross margin is $16 / $40 = 40%. A ROAS of 3 gives 3 × 0.40 − 1 = 0.20, the same 20% worked out above.
The formula shows why the same ROAS means such different things. Take two products that each run at a ROAS of 4:
- A product with a 20% gross margin: 4 × 0.20 − 1 = −20% ROI.
- A product with a 70% gross margin: 4 × 0.70 − 1 = 180% ROI.
ROI hits zero at your break-even ROAS, which is 1 divided by gross margin. Break-even ROAS walks through the costs to include so that margin is right.
How do ROAS, ROI and related measures compare?
ROAS, ROI and profit after ad spend each answer a different question about the same campaign. Most advertisers need at least two of them.
| Measure | Formula | What it answers | What it misses |
|---|---|---|---|
| ROAS | Revenue from ads / ad spend | Which ads bring in the most revenue per dollar | Product cost, so it can look strong on a losing campaign |
| Break-even ROAS | 1 / gross margin | The ROAS your ads must beat | How much profit you keep above it |
| ROI on ad spend | (Gross profit − ad spend) / ad spend | Whether ads made money on the sales they brought in | Fixed costs, and sales that would have happened anyway |
| Full ROI | (Gross profit − ad spend − fixed costs) / total cost | Whether advertising is worth it overall | Which single ad is working |
| Profit after ad spend | Gross profit − ad spend, in dollars | How much money you kept | How efficiently each dollar worked |
Why can a campaign have a strong ROAS and a poor ROI?
A campaign can have a strong ROAS and a poor ROI when its revenue carries a lot of cost, or when it gets credit for sales it did not cause. ROAS sees none of those costs.
A thin margin
A product with a 25% gross margin has a break-even ROAS of 4. A ROAS of 3.5 looks healthy on a dashboard and loses money on every sale.
Discounts in the ad
A sale ad lowers the price while the cost per order stays the same. A 20% discount on a product with a 40% margin cuts the margin to 25%, so the ROAS the ad needs rises from 2.5 to 4.
Returns after the purchase
ROAS counts revenue when the order is placed. If a product has a high return rate, part of that revenue comes back out later, along with the cost of items you cannot resell.
Credit for sales that would have happened anyway
Ads shown to past customers or to people searching your brand name often show a very high ROAS. Many of those people were going to buy regardless. Say a campaign aimed at past customers shows a ROAS of 8, but most of those buyers would have ordered without the ad. The ROI on the sales it caused is far lower than the ROAS suggests.
Two ad platforms can also claim the same order. Adding up the ROAS each one shows overstates what your ads brought in, while your own profit numbers do not double count.
When should you use ROAS and when should you use ROI?
Use ROAS to compare ads, audiences and campaigns against each other when they sell products with similar margins. Use ROI to decide whether advertising is worth the money, and to compare products with different margins.
ROAS is quick. You can check it daily in any ad platform, and bid strategies such as target ROAS in Google Ads set bids around the value of conversions, so it is the number the platform works toward.
ROI takes more work because it needs your own cost numbers. Check it when you set targets or decide which products to advertise, and whenever a campaign looks too good to be true.
A practical setup is to work out break-even ROAS for each product once, then watch ROAS day to day against that line. Anything above it has a positive ROI on ad spend.
Watching that line tells you how a campaign did. It does not tell you when demand is about to rise, which is the part Verdius works out for each product.
Is a campaign with a high ROAS always worth putting more money into?
A campaign with a high ROAS is worth more money only if its ROI is positive and demand for the product can absorb more spend. ROAS on a small budget aimed at warm buyers can fall as you spend more and reach people who were less ready.
Timing matters as much as the campaign. When home sales climb for a third month, more new owners replace the doorbell and the locks, so extra spend on those products reaches more ready buyers. While demand is flat, the same extra spend mostly buys clicks from people who are not looking yet. The guide on when to increase ad spend covers how to raise spend into a rise and bring it back down after.
Spotting that kind of build-up by hand means tracking the events behind each product week after week. Verdius does that step for you and flags when the rise starts and when it ends.
Should a small business track ROAS or ROI?
A small business should track both, and the easiest way is to turn ROI into a ROAS number. Work out break-even ROAS from your margin once, then compare every campaign's ROAS to it.
If you boost one campaign a month, that single number tells you whether the boost made money. If you run many campaigns, it gives each product its own floor.
How does Verdius help you keep ROAS above break-even?
Verdius is software that predicts when demand for a product will rise and who to target then. ROAS and ROI tell you how spend performed after the fact. Verdius tells you when to spend.
For each product you get:
- Optimal windows to run ads, each with a start and a stop, ranked against each other.
- The events behind each window, so you can see why buyers are about to act.
- The audience to reach, by age, income, location and interests, in the terms ad platforms already use.
- Alerts when a window opens and when it closes.
It reads data from Google Ads, Meta, TikTok, Reddit, Snapchat, LinkedIn, Microsoft Advertising and ChatGPT Ads, plus Google Analytics and Search Console. You keep running your own ads. How Verdius finds windows explains the method, and the plans show what each one covers.