What is ROI in marketing?

ROI and ROAS are not the same

ROAS divides revenue by ad spend. ROI subtracts every cost from the revenue and divides the remainder by the total cost.

The gap between them is the entire cost of running the business — goods, fulfilment, returns, support, the team. A campaign at 3x ROAS on a product with a 25% gross margin has a negative ROI, and both numbers are correct. Teams routinely optimise the first while the second gets worse.

Getting the denominator right

• Media spend, which is the only component most calculations include.
• Production and creative costs, which can rival media on smaller budgets.
• Agency fees and platform fees.
• Internal time, at least for a comparison between very different channels.
• Cost of goods and fulfilment on the revenue side, which is where most of the difference lives.

The measurement problem underneath

ROI inherits every weakness of the revenue figure it starts from. If revenue is attributed rather than incremental, the ROI is a precise-looking calculation on a number that has not established causation.

The rigorous version compares the profit of an exposed group against a control — see incrementality — which is more work and is the only version that supports a confident budget decision. Anything else is a well-formatted estimate.

The time horizon

ROI over a campaign window and ROI over a customer lifetime are different questions with different answers. Acquisition that looks unprofitable in the first month is frequently the most profitable thing a subscription business does, once LTV is counted.

State the horizon whenever you state the number. An ROI figure without one is not comparable to anything, including itself last quarter.