Two important metrics consistently show up across performance dashboards: return on ad spend (ROAS) and return on investment (ROI). ROAS measures how much revenue is generated for every advertising dollar spent on a marketing campaign, while ROI measures the overall profit generated relative to the total cost of an investment.
Understanding how these two marketing metrics complement each other can reveal whether seemingly successful ad campaigns are yielding a negative ROI due to hidden business costs. On an episode of the Shopify Masters podcast, Alex Penfold, cofounder of skin care brand Jaxon Lane, warns against looking at sales channels without tying them to your bottom line.
Although his brand was driving great revenue on Amazon, Alex admits they “weren't really monitoring the advertising spend and profitability as closely” as they should have been. It was only after they aligned their advertising costs with actual profit metrics that they achieved great financial results.
Learn how to accurately calculate both ROAS and ROI, explore the role each metric plays in a marketing strategy, and discover how to use these and related metrics to improve your overall marketing investment.
What is the difference between ROAS and ROI?
Return on ad spend (ROAS) measures how much revenue a business generates for every advertising dollar spent on a marketing campaign. It acts as a lens on ad efficiency, letting marketing teams know if their creative assets, targeting parameters, and direct ad costs are yielding immediate revenue on platforms like Google Ads or Meta Ads.
Return on investment (ROI) measures the overall profit generated relative to the total cost of an investment. While ROAS focuses strictly on top-line gross revenue generated from your paid ads, marketing ROI accounts for overall profitability after you’ve subtracted expenses like product costs, inventory manufacturing, shipping, third-party payment fees, and general operational expenses.
The difference lies in gross revenue versus net profit. Your digital ad campaigns could be incredibly efficient at driving sales revenue, but if your operational costs are too high, the entire investment might be earning only a meager net profit, or even losing money.
ROAS is a measure of how hard your advertising dollar is working to produce desirable results at the top of the funnel. ROI indicates whether your business is actually making money after you’ve paid everyone else.
ROAS vs. ROI formulas
To understand how these two metrics fit into advertising strategies, it is helpful to look at their standard formulas.
Calculating ROAS
The formula for ROAS is:
ROAS = Revenue from ads / Ad spend
As an example of how to use the formula within an ecommerce context, here’s a typical marketing campaign scenario:
A retailer launches a targeted Google Ad campaign. They allocate an advertising spend of $1,000 to this specific ad campaign over the course of a month. They determine that this advertising campaign generates $4,000 in gross revenue.
You can add these figures to the ROAS formula:
ROAS = $4,000 / $1,000 = 4
The campaign achieved a ROAS calculation of 4. This means it generated $4 in sales revenue for every dollar spent on advertising efforts. Another way of writing this would be 4:1. According to ecommerce data from TrueProfit, tracking across thousands of online stores reveals that the median baseline ROAS is 2.9:1.
Whether a specific ROAS is profitable or not for a company will depend on their margins and operating costs. For example, a retailer with a 25% gross margin takes in $25 in profit for every $100 in sales. With a ROAS of 4, the retailer spends $25 in ads to generate that $100 in revenue; however, that leaves very little money left over to cover additional costs, like payment processing, fulfillment, labor, and so on. Depending on the retailer’s total expenses, they may need a ROAS above 4 just to break even.
Calculating ROI
The formula for ROI is:
ROI = (Net profit / Total investment cost) x 100
To calculate ROI for the same hypothetical campaign, first find the total costs. Although the campaign brought in $4,000 in total revenue, the retailer also incurred $1,000 in product manufacturing costs, $600 in shipping and fulfillment fees, and $900 in total operational expenses and transaction fees, alongside the original $1,000 ad spend.
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Total revenue. $4,000
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Total costs. $1,000 (ad spend) + $1,000 (manufacturing) + $600 (shipping) + $900 (operations) = $3,500
Subtract the total costs from the total revenue to find the net profit:
Net profit = $4,000 - $3,500 = $500
Now plug the net profit figure and total investment cost into the ROI formula:
ROI = ($500 / $3,500) x 100 = 50%
The advertising campaign achieved a ROI of 14.3%. Put another way, for every $1 the retailer spent on advertising, it generated 14¢ in profit after paying all their related expenses.
This example highlights a critical reality for digital advertising: A campaign can have a remarkably strong ROAS but a low or even negative ROI if profit margins are thin or if secondary business costs are too high.
Sonia Mosseri, cofounder of the denim brand Still Here, describes on an episode of Shopify Masters how in the company’s early stages, every single line item required an explicitly accountable ROI to ensure corporate viability. It couldn’t afford the luxury of assuming brand awareness or top-of-funnel traction would eventually trickle down to the bottom line; every dollar spent on paid channels had to directly fund the next production run.
“Everything we did initially had to have a return on investment or else we wouldn’t be around in six months,” Sonia says. “And so all the decisions we were making, they couldn’t just be for brand or marketing purposes. They had to have an accountable return on investment. So if we were spending a thousand dollars, that had to come back as $2,000 or more.”
Break-even ROAS calculator
To move from theory to action, use a break-even ROAS calculator. This aggregates all the variable costs—production, shipping, and other expenses—that determine your profit margin. By accounting for these non-ad costs first, you can identify the minimum ROAS you need to have to cover overhead, ensuring your ad revenue isn’t just paying for the media placement but sustaining the entire fulfillment chain.
Enter your average order value (AOV) and product costs into the template below to see your minimum ROAS requirements:
When to use ROAS vs. ROI
Rather than view ROI and ROAS as competing targets, position the metrics as complementary tools to use at different stages of managerial decision-making.
When to use ROAS
Marketing teams use ROAS to monitor campaigns in real time. Because marketing and ad platforms capture revenue data immediately upon conversion, a ROAS calculation provides tactical, granular feedback.
If an ad creative on Meta Ads starts dipping in performance, or if a specific ad group within a Google Ads campaign experiences a spike in ad costs, software tracking ROAS in real time can flag the inefficiency. ROAS can inform how media buyers adjust daily bids, make image swaps, or reallocate ad dollars between tactical advertising channels to protect their brand’s immediate revenue velocity.
When to use ROI
Marketing teams use ROI to evaluate whether optimized ad campaigns actually contribute to long-term business profitability. You can’t easily calculate ROI on a daily level because operational expenses, bulk shipping invoices, and inventory manufacturing cycles operate over longer periods of time. For this reason, retailers commonly use ROI during monthly, quarterly, or annual reviews to determine if their overall marketing investment is in line with sustainable growth targets.
How to use ROAS and ROI to improve marketing performance
Sustainable growth depends on both efficient advertising and profitable operations. Here are tips for turning your high-level ROAS and ROI insights into tactical advantages:
Account for customer lifetime value
To evaluate your paid performance, look at customer lifetime value (CLV) in addition to ROAS.
A single transaction’s ROAS can hide the true long-term value of the customers acquired through your advertising tactics and disguise what led to the purchase. A campaign might break even or show a modest initial return on ad spend, but if those acquired shoppers have a high CLV and continue to shop with you, the long-term revenue they generate could ultimately transform your initial marketing spend into a positive ROI.
Dan Demsky, cofounder of the apparel brand Unbound Merino, worried less about return on ad spend and more about scaling, he says on Shopify Masters, letting his ROAS dip so they could better try different ads and see what works. This worked because the company was strong on CLV, and Dan knew that even if the company just broke even with the first purchase, it was worth it because customers kept coming back.
Track attribution
Attribution helps you understand what led a customer to buy from you. An educational ad campaign, or one targeting top-of-funnel brand awareness, may not generate a very high ROAS, but may still be useful for getting customers interested and convincing them to buy from you. Use attribution tools like Triple Whale and Active Campaign to trace touchpoints that influenced a customer’s sale.
Break down ROAS by channel and goal
Establish baseline target ROAS metrics for every paid marketing campaign based on your brand’s profit margins. By knowing your break-even point after factoring in cost of goods sold (COGS) and fulfillment, your marketing teams can more confidently manage daily ad platforms, scale up the winning ad sets, and pause underperforming advertising tactics before they drain your ad budget.
For instance, Ryan Bartlett, founder of the t-shirt brand True Classic, treats new customer ROAS as his ultimate daily metric to monitor top-of-funnel ad efficiency. On an episode of Shopify Masters, he explains that while overall ROAS is a blended number, new customer ROAS tells him exactly how efficiently he is acquiring new people at the top of the funnel. By stripping away the distortion of repeat purchasers, this specific variation of the metric isolates true acquisition health rather than relying on a generalized average.
You can track your ROAS for specific Shop Campaigns using Shopify’s native platform formula:
ROAS for specific Shop Campaign = Shop Campaign sales / Shop Campaign ad spend
This Shopify tool enables you to establish precise ROAS targets so you can reallocate budget away from your low-ROAS assets and into your highest-performing campaigns.
ROAS vs. ROI FAQ
Is ROAS the same as ROI?
No. ROAS measures the top-line gross revenue generated for every advertising dollar spent specifically on advertising, whereas ROI accounts for the bottom-line net profit generated by a marketing investment after subtracting all associated business costs, including product development, shipping, and operational expenses.
Which metric should ecommerce businesses use?
Ecommerce businesses should use both ROAS and ROI together. Use ROAS as a real-time, operational metric to track daily ad efficiency and campaign performance, and use ROI as a strategic, long-term metric to evaluate overall business profitability.
Can a campaign have high ROAS but low ROI?
Yes. An ad campaign can achieve a high ROAS by generating significant sales revenue, but if the profit margins are thin, or if advertising costs, shipping costs, return rates, and marketing costs are exceptionally high, the actual net profit will be minimal, resulting in a low or even negative ROI.
