ROAS Is a Reporting Metric. ROI Is a Business Truth.

You are probably calculating your marketing returns wrong. Most marketers treat ROAS and ROI as interchangeable metrics, but confusing them leads to misleading reports. In fact, a business can report a 200% ROAS while still losing money if these definitions are blurred. The distinction between these two metrics is more critical than you might think. Here is why that difference is the key to true business health.

Return on Ad Spend (ROAS)

$$\text{ROAS} = \frac{\text{Total Revenue Attributed to Ads}}{\text{Total Investment in Ads}}$$

It is a simple, widely utilized metric designed to measure the immediate impact of advertising on the business. However, it rests on an important assumption that the revenue observed after an ad runs is meaningfully caused by that ad. In practice, ROAS is correlative, not causal. It answers the question, “What happened after these ads ran?”, not “What revenue would not have happened without them?”. 

This distinction matters because ROAS is often presented as marketing's true contribution to the business. In reality, it frequently overstates that contribution by ignoring two critical factors:

1. Cost of Goods Sold (COGS) that are attached to the revenue generated.
2. Incremental revenue, which represents how much of that revenue would not have occurred without advertising.

These are finance-driven variables that, when excluded, like in the case of ROAS, inflate the credit assigned to marketing, especially paid media. By focusing only on media spend, ROAS overlooks the broader costs required to fulfill that revenue. This creates the same distortion I highlighted when exploring different Customer Acquisition Cost (CAC) formulas. The result of these exclusions is a metric that can look strong on paper, but masks an unprofitable and inefficient growth strategy.

Return on Investment (ROI)

Return on Investment (Marketing ROI) is calculated as:

$$\text{ROI} = \frac{\text{Net Profit} - \text{Total Marketing Investment}}{\text{Total Marketing Investment}}$$

Where Net Profit is:

$$\text{Net Profit} = \text{Incremental Revenue} - \text{Variable Costs} - \text{Marketing Spend}$$

And the final ROI formula is:

$$\text{ROI} = \frac{\text{Net Profit}}{\text{Total Marketing Investment}}$$

Incremental Revenue is the revenue that would not have occurred if it were not for the marketing activity. It removes baseline demand, organic growth, and other factors that should have driven the revenue. I have written extensively about incrementality and testing previously, which should help make sense of how this is determined.

Total Marketing Investment is the all-in cost of marketing, not just ad spend. It represents every cost required to generate incremental revenue from marketing efforts, such as labor, production, tools, promotions, and sales-related costs.

The inclusion of this investment in the numerator of the formula is falsely excluded in many ROI calculations, which would represent gross profit, rather than net. This exclusion can often mislead the view of performance, overstating returns. Including total investment aligns marketing ROI with how ROI is calculated across the rest of the business. The consistency in this inclusion matters for strategic budgeting and capital allocation. By incorporating both total investment and incremental revenue, ROI becomes a causal measurement rather than a correlative one like ROAS. It answers the question: “What profit was generated because of our marketing efforts?”

Measuring ROI is Not Easy

The downside of measuring ROI is the breadth of data required to do it. Unlike ROAS, ROI requires a close collaboration between Marketing and Finance to be able to land on accurate data around the Costs of Goods Sold (COGS). For many businesses, this is a time-consuming exercise for the finance team, and it cannot be calculated at the level of granularity of marketing analysis. As a result, assumptions are necessary, introducing uncertainty into the measurement. 

Finally, ROI depends on estimating incremental revenue captured through incrementality methods like Media Mix Modeling (MMM) and geo-based experiments (GeoLift). These techniques require specialized domain expertise, sufficient media spend, data variability, and enough historical data to produce statistically significant results.

For these reasons, ROI is not something most teams can accurately calculate when starting out, but it should be an aspirational milestone in your company’s marketing measurement maturity. One that comes after comfortably using and optimizing your program around ROAS. While imperfect, ROAS remains directionally better than most programs that measure success based on acquiring customers and treating all customers with equal value to the business.

Conclusion

The health of a business is directly tied to the accuracy of its marketing measurement. When marketing metrics are not aligned with financial health metrics, teams lose the ability to understand business growth, stagnation, or decline, and course-correct accordingly.

The misalignment is especially dangerous when metrics like ROAS and ROI are used interchangeably. When marketing reports on success, but the business shows signs of stress, trust in the marketing program erodes. In these moments, finance teams have to make quick, high-impact decisions commonly in the form of marketing budget cuts that ultimately are more damaging to the long-term growth of the business, rather than the underlying performance issues that often have short-term implications.

As I have highlighted previously, trust, communication, and collaboration between Marketing and Finance are the foundation for marketing’s success. These teams should be working together when creating these formulas. Both teams need to have alignment on their understanding of what each metric is and is not designed to measure.

ROAS has utility as an operations and reporting metric that guides rapid decisions around budget distribution and interpretation of channel performance. ROI, while harder to measure, provides a strong indicator of marketing’s true contribution to the business. Both have a place in your organization's reporting, and the payoff of investing in accurately defining and understanding these metrics is better decision-making, strong trust, and resilient growth.