What is ROI (return on investment) in marketing?
How is marketing ROI calculated?
Our convention: take the profit that marketing produced. Divide it by what the marketing cost. Express it as a percentage. Not every guide does this; some put sales in place of profit, so ask which one you are looking at.
The same campaign might show 4,000 in attributed revenue. That is a ROAS of 4.0. Same spend, two numbers, two different questions.
The hard part is the word "profit". Which costs are in it? Product cost, delivery, payment fees and returns all change the answer. Our view: start from contribution margin, what is left per order after those variable costs. Before you compare two ROI figures, check that both use the same profit and the same cost.
Why do people mix up ROI and ROAS?
Both have "return" in the name. Both are ratios. Both appear on agency slides.
But ROAS never subtracts a cost of goods. A campaign can post a strong ROAS and a poor ROI. Finance teams think in profit, so a ROAS quoted as ROI starts the wrong conversation. For the full comparison, see ROAS vs MER vs POAS.
For ZFD: Our view is that the safest habit is to name the metric every time. Say "ROAS" for revenue per euro of ads. Say "ROI" only when profit is in the numerator.
Worked example
Easily confused with
ROI vs ROAS
Conversion value attributed to ads divided by ad spend. It measures revenue, not profit.
ROI vs POAS (profit on ad spend)
Profit from ad-attributed sales divided by ad spend. Sources define "profit" differently, so check which one.
ROI vs Payback period
How many months the margin a customer generates takes to repay the cost of acquiring them. ROI says how much, payback says how soon.
FAQ
Is ROI the same as ROAS?
No. In our convention ROI uses profit and cost. ROAS uses attributed revenue and ad spend.
Can ROI be negative?
Yes. If the profit marketing generated is lower than what it cost, the return is a loss.
How do I explain marketing return to my CFO?
Use profit, state the costs included and say how the number was checked. Our write-up on how to justify marketing spend to your CFO goes through it.
Sources
- roi marketingVendor
Let’s find what’s actually working.
Next step. See what your numbers look like on explicit assumptions. Use the Is your ROAS real? calculator.