Return On Ad Spend (ROAS), ROI, and ROMI

Return on Ad Spend (ROAS) is a core advertising metric that measures how much revenue your ads generate for every dollar spent. It shows the direct financial performance of an advertising campaign and helps determine whether an ad investment is paying off.

How to Calculate ROAS

Use this guide to calculate your ROAS and understand what the final number means.

ROAS Formula

ROAS = Revenue from Ads / Cost of Ads

Step-by-Step Calculation

1. Step 1: Determine the total revenue generated directly from your ads over a given period.

2. Step 2: Determine the total cost of your ads for the same period.

3. Step 3: Divide the revenue from ads by the cost of ads using the formula: ROAS = Revenue from Ads ÷ Cost of Ads.

4. Step 4: Interpret the result as the amount of revenue generated for every $1 spent on ads.

ROAS Example

If you spend $2,000 on ads and generate $10,000 in revenue:

• ROAS = 10,000 ÷ 2,000 = 5

• This means the campaign returns $5 for every $1 spent (a 5:1 ratio, or 500%).

Why ROAS Matters

ROAS helps advertisers evaluate how effectively their advertising spend is turning into revenue.

• Evaluate the performance of individual campaigns.

• Decide which channels deserve more investment.

• Compare acquisition efficiency across traffic sources.

• Optimize campaigns based on profitable segments.

When paired with Customer Lifetime Value (LTV), ROAS becomes even more powerful for long-term planning.

Key Cost Factors That Affect ROAS Accuracy

Accurate ROAS requires including all relevant advertising costs, not just media spend. If important cost components are left out, ROAS will appear artificially inflated.

Common Cost Components to Include

• Partner & vendor fees: Agencies, marketing consultants, outsourced campaign managers, creative development costs, and platform fees.

• Affiliate commissions: Network fees and percentage-based payouts to affiliates.

• CPC & CPM considerations: Cost per click, cost per thousand impressions, number of impressions purchased, and click volume.

How to Determine What Is a “Good” ROAS

There is no universal ROAS benchmark. A “good” ROAS varies based on your business and financial structure.

Factors That Influence ROAS Targets

• Business model

• Product margins

• Operating costs

• Stage of growth

General ROAS Guidelines

• Many businesses aim for a 4:1 ROAS (every $1 generates $4).

• Companies with tight margins may require 10:1 to stay profitable.

• High-growth brands may accept 3:1 or lower temporarily to scale aggressively.

How to Define Your Own ROAS Target

To determine your own “good ROAS,” you must understand your cost structure and profit goals.

1. Step 1: Identify your true cost of goods sold (COGS).

2. Step 2: Calculate your ongoing operating expenses.

3. Step 3: Define your desired profit margin targets.

4. Step 4: Assess your cash flow requirements and how quickly you need ad spend to pay back.

5. Step 5: Set a minimum ROAS that keeps you profitable based on your margins and growth strategy.

Higher margins allow lower ROAS targets, while low-margin businesses must maintain higher ROAS to stay profitable.

How ROAS, ROI, and ROMI Differ

ROAS is only one way to measure advertising effectiveness. Many teams also use ROI and ROMI to get a broader financial perspective.

ROI (Return on Investment)

ROI measures profitability after accounting for all business expenses, far beyond advertising alone.

Formula: ROI = (Revenue – Total Costs) / Total Costs

Use ROI when:

• You want a full financial picture.

• You need to understand true profitability.

• You are evaluating overall business performance, not just ad channels.

ROMI (Return on Marketing Investment)

ROMI evaluates the profitability of marketing activity more broadly than ROAS.

ROMI can be calculated in two ways:

• Without COGS (income-focused): Income from marketing / Marketing expenditure × 100

• With COGS included (profit-focused): (Income – COGS – Marketing Expenditure) / Marketing Expenditure × 100

ROMI is useful when:

• You want to understand the profit impact of marketing.

• You have to account for production, shipping, discounts, or fulfillment costs.

• You need to compare multiple marketing channels holistically.

How to Choose Between ROAS, ROMI, and ROI

Different metrics answer different questions. Use each one based on the level of financial detail you need.

When to Use ROAS

• You want to compare ad campaigns, ad groups, or keywords.

• You’re optimizing inside platforms like Google Ads or Meta Ads.

• You need a fast, granular signal to adjust bidding or budgets.

When to Use ROMI

• You want a more complete view, including COGS and marketing costs.

• Revenue alone is misleading due to thin profit margins.

• You want to measure strategic efficiency across channels.

When to Use ROI

• You want a full business-level profitability view.

• You're analyzing beyond advertising (e.g., operations, product costs, shipping).

• You need to justify long-term budget decisions to leadership.

Using Conversion Rate (CRO) for Deeper Insight

ROAS alone tells you what happened—but not why. Conversion Rate Optimization (CRO) helps explain performance by analyzing user behavior and funnel efficiency.

CRO helps answer:

• Which ads triggered the best conversion actions?

• Which landing pages convert more efficiently?

• What parts of the funnel create bottlenecks?

Analyzing ROAS together with CRO provides a more complete view of campaign effectiveness.

Summary

ROAS shows how much revenue is returned per dollar of ad spend and is ideal for tactical optimization. ROI shows total profitability after all costs. ROMI evaluates marketing investment efficiency, often including COGS and correlated expenses.

Different businesses require different ROAS targets based on their margins and growth strategy. Combining ROAS, ROI, ROMI, and CRO provides the clearest picture of marketing performance.