What marketing ROI measures
Marketing ROI, return on investment, tells you what a campaign earned for every unit of currency you put into it, after paying for itself. Google Ads Help describes ROI as the ratio of your net profit to your costs (About return on investment). For marketing, the cost is the campaign and the profit is the gross profit the campaign brought in, minus that cost:
An ROI of 0% means the campaign exactly paid for itself. Above 0% it made money, below 0% it lost money. The calculator also shows the result as a return ratio, gross profit ÷ cost: 1.6:1 means every $1 of marketing brought back $1.60 of gross profit, the $1 itself plus $0.60, an ROI of 60%.
From revenue or from profit
Most reports credit revenue to a campaign, not profit. But revenue still contains the cost of what you sold, so the calculator offers two ways in:
Gross margin is the share of revenue left after the direct cost of the goods or services, and the profit margin calculator works it out from price and cost. If you leave the margin empty, every unit of revenue counts as profit. That gives an ROI on revenue, (Revenue − Cost) ÷ Cost, which is quick but too high for anything with a product cost: the example below shows 300% on revenue against 60% on gross profit. For a service with almost no direct cost, the two come close.
A worked example
A campaign cost $5,000 in ads, fees and content and is credited with $20,000 of sales. The products carry a 40% gross margin.
- Gross profit: $20,000 × 40% = $8,000.
- Net return: $8,000 − $5,000 = $3,000.
- ROI: $3,000 ÷ $5,000 × 100 = 60%, a return ratio of 1.60:1.
- ROAS: $20,000 ÷ $5,000 = 4.00x.
- Break-even revenue: $5,000 ÷ 40% = $12,500. Below that, the gross profit does not cover the campaign.
Marketing ROI vs ROAS
Return on ad spend divides revenue by ad cost. Google Ads Help defines a target ROAS as the average conversion value, for example revenue, you would like to get for each dollar you spend on ads, and gives 5 dollars in sales for each dollar of ad spend as a 500% target ROAS (About Target ROAS bidding). ROAS leaves out what the products cost, which is why a campaign with a 4.00x ROAS can still be judged by its 60% ROI.
With a gross margin, the two convert into each other: ROI = ROAS × Margin − 1. The ROAS at which ROI is exactly 0% is the break-even ROAS, 1 ÷ Margin, 2.50x at 40%. The ROAS calculator works from that side. A ratio like 5:1 can mean revenue to cost, which is ROAS, or profit to cost, so check which one before you compare two reports.
Why Google's ROI formula gives a different number
Google Ads Help writes ROI as (Revenue − Cost of goods sold) ÷ Cost of goods sold, where for physical products the cost of goods sold is the manufacturing cost of all the items sold plus your advertising costs. Its example, in US dollars: a product that costs 100 dollars to make sells for 200 dollars, ads bring 6 sales and cost 200 dollars, so the ROI is (1,200 − (600 + 200)) ÷ (600 + 200) = 50% (Google Ads Help: Return on investment).
The net profit on top is the same in both methods, $400. What differs is the bottom. Google divides by everything spent on those sales, products included. Marketing ROI divides by the marketing money alone: ($600 − $200) ÷ $200 = 200%. Both are correct answers to different questions. Use marketing ROI to decide where the next marketing dollar should go, and say which formula you used when you share the number. For lead generation, Google Ads Help counts only the advertising costs as cost of goods sold, and then the two methods match.
Baseline and incremental revenue
Not every sale during a campaign happened because of it. Some customers would have bought anyway. Incremental revenue is the revenue the marketing added: total revenue minus a baseline, the sales you would have made in the same period without it. Enter a baseline and the calculator uses only the incremental part for ROI, ROAS and the break-even point.
In the example, with a baseline of $8,000, only $12,000 is incremental. Its gross profit is $4,800, and the ROI drops from 60% to -4%. A clean baseline comes from your own history: the same weeks last year, a region without the campaign, or the weeks just before it. Attribution can also miss value. Google Ads Help notes, in its guide to working out a return, that a campaign's true value is probably higher than the estimate because some conversions and brand exposure cannot always be tracked (Do the math).
Comparing channels
The Compare channels tab ranks up to six channels by ROI and adds a total. With the example rows and a 40% margin, Email leads at 220% and Display ads comes last at -20%. Together they cost $9,000 and brought $34,000, an overall ROI of 51.1%. That is not the simple average of the four ROIs, 75%, because the channels spend very different amounts. Always add up costs and revenue first.
A high ROI on a small budget does not mean the channel will keep that return when you spend ten times as much. Shift budget step by step and watch the ROI of each channel as it grows. To compare what each channel pays per sale or lead, use the CPA calculator, and for the full cost of winning a customer, the CAC calculator.
Common mistakes
- Revenue instead of profit. An ROI on revenue ignores the cost of what you sold and makes every campaign look better.
- Leaving costs out. Agency fees, content and tools are part of the marketing cost. Without them the ROI is too high.
- Mixing periods. Use cost and revenue from the same dates, and for slow buying decisions allow for the delay between the ad and the sale.
- Ignoring repeat purchases. A campaign that wins customers who buy again is worth more than its first sales. The customer lifetime value calculator estimates what a customer brings over time.
How to use the marketing ROI calculator
- 1Choose Revenue and margin if your reports show sales, or Gross profit if you already know the profit before marketing costs.
- 2Enter the marketing cost and the revenue or profit credited to the campaign, and your gross margin for the revenue route.
- 3Add a baseline if part of the sales would have happened anyway, to count only incremental revenue.
- 4To compare channels, switch to Compare channels, enter a cost and revenue for each and read the ranking. Copy the result, a link with your numbers, or the table as CSV.
Frequently asked questions
How do you calculate marketing ROI?
Take the gross profit the marketing brought in, subtract what the marketing cost, and divide by that cost. $20,000 of revenue at a 40% margin is $8,000 of gross profit. After $5,000 of marketing cost, $3,000 is left, and $3,000 ÷ $5,000 = 60%.
What is the difference between ROI and ROAS?
ROAS divides revenue by ad spend and ignores what the products cost you: $20,000 ÷ $5,000 = 4.00x. ROI looks at profit after the marketing has been paid for, 60% in the same example. A ROAS above 1x can still be a loss, while an ROI above 0% means the marketing earned more gross profit than it cost.
Should I calculate ROI from revenue or from profit?
From profit when you can. Revenue includes the cost of the goods or services you sold, so an ROI on revenue looks better than the business really did: the example shows 300% on revenue but 60% on gross profit. Choose "Revenue and margin" to turn revenue into gross profit with your margin, or "Gross profit" if you already know the profit.
Can marketing ROI be negative?
Yes. A negative ROI means the gross profit from the marketing did not cover its cost. At −100% the marketing brought no gross profit at all. With a baseline it can go lower still, if sales during the campaign fell below what you would have sold anyway.
What counts as marketing cost?
Everything you spent to run the campaign or channel: media and ad spend, agency and freelancer fees, the cost of creating ads and content, and tools you use only for it. Leave out costs you would have had anyway. Whatever you choose, use the same rules for every campaign you compare.
Why does Google Ads show a different return?
The Conv. value / cost column in Google Ads divides your total conversion value by the cost of the ad interactions, Google Ads Help says. That is a ROAS figure: it compares revenue with ad cost and does not subtract the cost of what you sold. Google Ads Help also has its own ROI formula, which puts product costs and ad costs together in the bottom of the fraction. The guide above compares the methods with numbers.
What does the baseline field do?
It removes sales you would have made without the campaign, so the ROI counts only the extra, or incremental, revenue. In the example, a baseline of $8,000 leaves $12,000 of incremental revenue and turns a 60% ROI into -4%. Use your own sales history for the same season to estimate it.