If you’re new to digital marketing or just starting to run ads for your business, you’ve probably heard the terms ROAS and ROI. At first glance, they might sound like the same thing, but they measure very different parts of your business performance.
Understanding the difference between ROAS and ROI can help you avoid wasting money, improve your advertising strategy, and grow your business with confidence.
Let’s break it down in simple terms.
What is ROAS?
ROAS stands for Return on Ad Spend.
It tells you how much revenue you earn for every dollar you spend on advertising. Think of it as a way to measure how efficient your ads are at bringing in sales.
The formula is simple:
ROAS = Revenue from Ads ÷ Cost of Ads
Example:
- You spend $500 on ads.
- You make $2,000 in sales directly from those ads.
ROAS = 2000 ÷ 500 = 4
That means for every $1 spent, you earn $4 in revenue.
Why it matters:
- It shows how effective your ad campaigns are.
- It’s easy to compare performance across different platforms.
- It helps you decide where to put your ad budget.
But here’s the catch: ROAS only looks at advertising costs. It doesn’t include other expenses like product manufacturing, shipping, salaries, or software tools.
What is ROI?
ROI stands for Return on Investment.
Unlike ROAS, ROI looks at the bigger picture. It takes all costs into account, not just advertising. This makes ROI a true measure of profitability.
The formula is:
ROI = (Net Profit ÷ Total Investment) × 100
Example:
- You spend $500 on ads.
- You generate $2,000 in sales.
- Your product cost is $1,000.
That leaves you with a net profit of $500 ($2,000 revenue – $500 ads – $1,000 product cost).
ROI = (500 ÷ 500) × 100 = 100%
So while your ROAS looked great at “4x,” your actual ROI shows that you only doubled your money once all costs were considered.
Why it matters:
- It gives a complete view of your business’s profitability.
- It helps with long-term decision-making.
- It can reveal if your “profitable” campaigns are truly worth scaling.
ROAS vs ROI: What’s the Difference?
Here’s the easiest way to think about it:
- ROAS tells you if your ads are working.
- ROI tells you if your business is making money.
Both are important, but they serve different purposes. If you only focus on ROAS, you might think your ads are amazing while actually losing money after other costs are considered. On the other hand, if you only focus on ROI, you might overlook which ad channels are driving the most revenue.
How to Use ROAS and ROI Together
The smartest approach is to track both metrics side by side. Here’s how:
- Check ROAS first. Use it to see which ad campaigns are generating revenue most efficiently.
- Then look at ROI. This ensures that the campaign is truly profitable after product costs, shipping, salaries, and other expenses.
- Balance the two. A campaign with a high ROAS but low ROI might not be sustainable. Likewise, a campaign with moderate ROAS but strong ROI could be worth scaling.
Final Thoughts
For beginners, it’s easy to get lost in the numbers. But the difference between ROAS and ROI is actually simple:
- ROAS = Ad performance
- ROI = Business profitability
By using both, you’ll not only understand which ads are driving sales but also whether your business is making real profit. This knowledge helps you spend smarter, scale confidently, and grow your business sustainably.
The bottom line? Don’t choose between ROAS and ROI. Track both, and you’ll have the full story behind your marketing performance.
