What is the difference between ROI and ROAS?

ROAS divides advertising revenue by advertising spend and stops there. ROI divides profit by the full investment, so cost of goods, fees and overheads are already subtracted. A ROAS of 4.0 says four dollars came back per dollar spent; it says nothing about how much of those four dollars was yours to keep.

Can a campaign have good ROAS and negative ROI?

Yes, and it is common on thin margins. At a 20 % gross margin the break-even point sits at a ROAS of 5.0. A campaign running at 4.0 looks healthy in the dashboard and loses money on every order.

Which should I optimise for?

Steer daily bidding by ROAS, because it is the figure the platform reports and updates in near real time. Judge whether the channel deserves its budget by ROI, monthly or quarterly. Using ROAS for the second job is what produces profitable-looking accounts that shrink the business.

Is ROMI the same as marketing ROI?

Return on marketing investment is the same idea under a name that is common in continental European practice and rare in English-language agency talk. Watch the numerator rather than the label: the usual English convention divides revenue minus cost by cost, while the continental one divides gross profit minus cost by cost. On identical inputs that is the difference between 300 % and 20 %.

ROI vs ROAS: Why a Strong Campaign Can Lose Money

Two ratios, one gap between them, and the gap is your margin.

We sell two product lines through the same account, on the same bidding strategy, with roughly the same creative. One margins out at 52 %, the other at 21 %. Last spring both sat at a ROAS just under 4.0, and I spent a fortnight pleased with myself before the quarterly numbers came in. One line had paid for the campaign three times over. The other had not paid for it at all.

The two formulas, and what sits in each numerator

Both ratios ask what came back per unit spent. They disagree about what counts as coming back.

ROAS = advertising revenue ÷ advertising spend

ROI = (profit − investment) ÷ investment

The word doing the work is profit. ROAS counts revenue, which still contains everything you paid to put the product in the box. ROI counts what remains after that, which is why the two numbers can point in opposite directions on the same campaign and both be correct. The ROAS calculator works the first one out; the ROI calculator handles the second.

Where the gap opens

Divide one by your gross margin and you get the ROAS at which advertising exactly pays for the goods it sold. Below that line the campaign is spending your own money to move stock.

Gross margin 20 % break-even ROAS 5.00

Gross margin 30 % break-even ROAS 3.33

Gross margin 40 % break-even ROAS 2.50

Gross margin 50 % break-even ROAS 2.00

Read that against our two product lines and the fortnight of self-congratulation explains itself. At 52 % the threshold was 1.92, so a 4.0 was comfortable. Down at 21 % it was 4.76, and the identical 4.0 sat below it. Nothing in the Google Ads interface knew the difference, because nothing in the interface knew what the goods had cost us. The break-even ROAS calculator turns your own margin into that threshold.

ROAS vs ROMI: the same argument, different vocabulary

German and continental European marketing writing puts this comparison as ROAS against ROMI, return on marketing investment. Same argument, different label. Worth knowing if you read across languages, because the continental convention also computes it differently: gross profit minus cost over cost, where the usual English marketing ROI takes revenue minus cost over cost.

On identical inputs those two produce 20 % and 300 %. Neither is wrong. Only one of them tells you whether you can pay the rent, so when somebody quotes a marketing ROI at you, ask what went in on top before you react to the size of it.

Which one to steer by

Both, at different frequencies. ROAS is what the platform reports and refreshes hourly, so it is the right instrument for bid adjustments and for spotting a campaign that has fallen over. ROI answers a slower question: does this channel deserve the budget it has, measured against everything else the money could do.

The failure I keep seeing is one number doing both jobs. An account steered purely by ROAS drifts towards whatever converts cheaply, and what converts cheaply is usually the thin-margin end of the catalogue. Revenue holds up. Profit does not, and by the time the quarterly figures say so, three months of budget has gone into the wrong products.

Daily: ROAS, per campaign, against a break-even threshold you calculated once
Monthly: ROI or contribution per channel, with cost of goods in
Never: a single ROAS target across products whose margins differ

Frequently asked questions

What is the difference between ROI and ROAS?: ROAS divides advertising revenue by advertising spend and stops there. ROI divides profit by the full investment, so cost of goods, fees and overheads are already subtracted. A ROAS of 4.0 says four dollars came back per dollar spent; it says nothing about how much of those four dollars was yours to keep.
Can a campaign have good ROAS and negative ROI?: Yes, and it is common on thin margins. At a 20 % gross margin the break-even point sits at a ROAS of 5.0. A campaign running at 4.0 looks healthy in the dashboard and loses money on every order.
Which should I optimise for?: Steer daily bidding by ROAS, because it is the figure the platform reports and updates in near real time. Judge whether the channel deserves its budget by ROI, monthly or quarterly. Using ROAS for the second job is what produces profitable-looking accounts that shrink the business.
Is ROMI the same as marketing ROI?: Return on marketing investment is the same idea under a name that is common in continental European practice and rare in English-language agency talk. Watch the numerator rather than the label: the usual English convention divides revenue minus cost by cost, while the continental one divides gross profit minus cost by cost. On identical inputs that is the difference between 300 % and 20 %.

Background & sources

What Google Ads counts as the value of a conversion, and the fact that the advertiser decides what goes into it — the reason ROAS measures whatever you send it, revenue by default: Google Ads Help – «About conversion values»
Definition of return on investment, the formula and its limits as a performance measure: Investopedia – «Return on Investment (ROI)»

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