ROI vs ROAS: definitions, formulas, and when to use each

The difference

• ROAS focuses on revenue per ad dollar: revenue / ad spend.
• ROI focuses on profit relative to total cost: (revenue - cost) / cost.
• A high ROAS can still have a negative ROI if margins or costs are poor.

Formulas (quick reference)

• ROAS = revenue / ad spend.
• ROI = (revenue - total cost) / total cost.

When to use ROAS

• Channel/campaign optimization when you have stable margins and costs.
• Topline testing, creative iteration, and early funnel comparisons.
• When profit data is hard to attribute cleanly at campaign level.

When to use ROI

• Budget allocation across initiatives (ads vs content vs partnerships).
• When you can include incremental costs reliably (fees, labor, tools).
• When profitability, not just revenue, is the decision metric.

How to compute ROI correctly

• Use profit in the numerator, not revenue (revenue can hide margin).
• Include all incremental costs: ad spend, fees, labor, tools, and returns.
• Keep the time window consistent for both revenue and costs.

ROI vs payback

• ROI shows magnitude of return; payback shows speed of recovery.
• High ROI with slow payback can still strain cash flow.
• Use both when budgets are constrained.

Example: ROAS vs ROI

If you spend $1,000 and generate $5,000 in revenue with $3,000 in total costs, ROAS = 5.0 but ROI = (5,000 - 3,000) / 3,000 = 0.67 (67%).

ROI QA checklist

• Ensure attribution window matches the revenue window.
• Remove one-time costs from recurring ROI comparisons.
• Separate gross margin changes from channel performance shifts.

Attribution pitfalls

• Use the same attribution model and window for comparisons.
• Avoid mixing platform-reported conversions with last-click analytics without a clear rule.
• For mature accounts, validate with incrementality tests when possible.