When a business spends money on Google or Facebook ads, the first numbers it usually checks are clicks and ad spend. Those numbers are useful, but they do not tell you whether the campaign made money.

Say you spend $1,000 on ads and generate $2,000 in revenue. It might look like you made $1,000. But if you had another $2,000 in costs, you actually lost money.

That is why businesses use two metrics: ROAS shows how much revenue ads generate, while ROI shows whether an investment made a profit after costs. The difference matters when you decide whether to keep a campaign running or increase its budget.

What is ROI, and how do you calculate it?

ROI stands for Return on Investment. It helps you estimate how much profit an investment generated compared with what it cost.

The formula is:

ROI = net profit / investment cost × 100

In this calculation, net profit is what remains after subtracting the related costs, including the investment itself. Investment cost is the amount you spent.

For example, if an investment costs $1,000 and leaves you with $2,000 in net profit after all related costs, the ROI is 200%.

A positive ROI means the investment generated a profit. A negative ROI means the revenue it generated did not cover the costs. An ROI of 0% means you broke even, with no additional profit.

The percentage alone does not tell you whether an investment is right for your business. You also need to consider how long it takes to pay off, the risk involved, and what else you could have done with the money.

What does ROI look like in practice?

The formula is straightforward. The harder part is deciding which revenue and costs actually belong to the investment you are evaluating.

Example 1: A website for a tile contractor

Imagine a tile contractor who pays $75 per month for a website. A smaller tile installation job brings in about $500. The customer buys the materials, and the contractor has another $100 in direct costs for each job.

What the website alone brings back

First, look at the website as a separate investment. Subtract only the website cost from revenue, not the cost of doing the work. This assumes every job in the table came through the website.

Even one job in a month brings in several times the website's monthly cost. This is only a rough view because it does not include the cost of completing the work. That is where overall ROI comes in.

What the overall ROI looks like

Now consider the business as a whole. The costs include both the direct cost of each job and the website subscription.

Net profit is lower here because the calculation includes $100 in direct costs per job. ROI is also lower because the denominator includes all costs, not just the website. This is a more realistic view of the business. The website is a relatively small expense, while the revenue comes from the jobs it brings in.

These figures only make sense if the jobs actually came through the website. Track where each inquiry came from. The time spent handling inquiries is not included either.

Example 2: Local SEO for a dental practice

A dental practice invests $1,000 in improving its website, content, and local visibility on Google. Over the following months, it attracts new patients through organic search.

After subtracting the costs of providing the services, the practice estimates that those new patients generated $2,000 in additional profit before the SEO investment is deducted.

Subtract the $1,000 investment, and $1,000 in net profit remains. The ROI is 100%.

This calculation is useful only if the profit estimate is realistic and there is a sound reason to connect the additional business to the investment. You should not attribute every new patient to SEO just because they arrived while changes were being made to the website.

SEO is often evaluated over a longer period because results do not appear overnight.

If you want to understand which channels can bring in customers, read how to get customers online.

What is ROAS, and how do you calculate it?

ROAS stands for Return on Ad Spend. It shows how much revenue you generate for every dollar spent on advertising.

The formula is:

ROAS = ad-attributed revenue / ad spend

If you spend $100 on ads and generate $1,000 in revenue that can be attributed to those ads, your ROAS is 10. That means each dollar spent on ads generated $10 in revenue.

ROAS can be shown as a ratio, such as 10:1, or as a percentage, in this case 1,000%. Both express the same relationship between ad revenue and ad spend.

Unlike ROI, ROAS does not subtract product costs, labor, materials, shipping, or other business expenses. A high ROAS does not guarantee that a campaign is profitable.

What ROAS do you need to break even?

ROAS tells you how much revenue you generate for every dollar spent on ads. But revenue is not the same as profit. To work out the ROAS needed to cover your ad spend, you also need to account for your margin.

The formula is simple:

Break-even ROAS = 1 / margin

Your margin is the share of revenue left after direct costs such as materials, labor, or inventory. Enter it as a decimal, so a 50% margin is written as 0.5.

If your margin is 50%, the break-even ROAS is 1 / 0.5 = 2, or 200%. At that point, the profit left after direct costs covers the ad spend. You need to generate $2 in revenue for every $1 spent on ads.

If your margin is 25%, you need a ROAS of 4, or 400%.

This is a simplified calculation. It tells you how much revenue is needed to cover ad spend from the margin on sales, but it does not guarantee that your other fixed business costs are covered. A ROAS that looks good on a dashboard can still leave the business unprofitable.

Example 1: Google Ads for a bathroom remodeling company

A bathroom remodeling company spends $100 on ads. The campaign brings in an inquiry that turns into a $2,000 job.

The ROAS is 20, or 2,000%. The company generated $20 in revenue for every dollar spent on ads.

But revenue is not profit. If materials and labor cost $1,000, the company has $1,000 left after those costs. Subtract the additional $100 in ad spend, and $900 remains before other business expenses and taxes.

This example shows why ad data needs to be connected to jobs that are actually booked. A submitted form is not the same as a signed contract, and a signed contract is not the same as a paid invoice.

Example 2: An online store

An online store spends $1,000 on ads and generates $4,000 in sales attributed to the campaign.

Its ROAS is 4, or 400%. The store generates $4 in revenue for every dollar spent on ads.

However, inventory, packaging, shipping, and other variable costs total $2,000. After subtracting those costs and the $1,000 in ad spend from revenue, the store has $1,000 left before fixed business expenses and taxes.

That is why a store should not chase the highest possible ROAS at any cost. A better revenue-to-ad-spend ratio does not necessarily mean a higher overall profit.

What is the difference between ROI and ROAS?

ROI and ROAS answer different questions. ROAS helps you evaluate the revenue generated by paid advertising. ROI is a broader measure of the return after accounting for the costs associated with an investment.

An example makes the difference easier to see.

A company spends $1,000 on ads and generates $4,000 in revenue. If it has another $1,000 in direct costs, total costs are $2,000 and net profit is $2,000. ROI is 100%, while ROAS is 4, or 400%.

Now imagine the same company generates the same revenue and spends the same amount on ads, but has another $4,000 in costs.

Both companies have the same ROAS, but their business results are very different. Company A makes a profit, while Company B loses money.

Do not increase your ad budget just because ROAS looks good. First, check what remains after all relevant costs are deducted.

ROAS is generally not the right metric for a website, local SEO, or equipment because those investments are not necessarily paid advertising. For them, it is more useful to track the investment cost, additional profit, and how long it takes to earn the money back.

How to track ROAS in Google Ads and other platforms

Google Ads and Meta Ads can report conversion value relative to ad spend. The result depends on which conversions you track and what values you assign to them.

Tracking is relatively straightforward for an online store: a purchase can be recorded along with the order value. For a local service business, it is more complicated.

A click on a phone number is not the same as a completed call. A completed call is not the same as a booked job. And a booked job is not necessarily a paid job.

If every click on a phone number is counted as a conversion worth $1,000, the report can look excellent even if nobody answers or no call turns into a job. The platform is showing the value you assigned to the conversion, not necessarily the money the business earned.

For more useful reporting, track a few steps:

1. Track inquiries. Record phone calls, submitted forms, and other actions that show someone is interested.
2. Record what happened next. Note whether a conversation took place, a quote was sent, and a job was booked.
3. Connect booked jobs to their inquiry source. This helps you see which channels actually bring in customers.
4. Use realistic conversion values. Where possible, track actual sales or use estimates based on your business data.
5. Track job costs as well as revenue. Only then can you estimate how much a campaign contributed to profit.

Google explains how conversion values are used to measure business performance in its documentation, About conversion values. A conversion value in an ad account is not automatically the same as the business's net profit.

For a local service business, a simple record of inquiry sources and job outcomes is often more useful than relying only on numbers from an ad platform.

The same applies when customers find you through your website or organic Google Search results. Do not automatically attribute those customers to paid ads. If you want to compare channels, record where each inquiry came from and whether it turned into a paid job.

How to decide whether an investment is worth it

There is no single ROI or ROAS that is good for every business. You need to look at the result in the context of your margins, costs, timeline, and investment goal.

Before increasing a budget or abandoning a channel, check the following:

• How much do you keep from each job? A business with a small margin cannot afford the same ad costs as one that keeps a large share of its revenue.
• How many inquiries turn into paid jobs? If you get plenty of inquiries but few become customers, the problem may not be the number of website visits.
• How long does it take to get the money back? SEO and a website may produce results over a longer period. An ad campaign can often be assessed over shorter intervals once there is enough data.
• Have you included all relevant costs? For ads, the cost is not just clicks. For a website or SEO, costs may include development, maintenance, content, and the time spent handling inquiries.
• Could the same money do more somewhere else? Even an investment with a positive return may not be the best choice if another option offers a better use of your resources.

If you are planning a website, consider how you will pay for it. A larger one-time payment and a monthly subscription affect cash flow differently. With a website plan that costs $75 per month, you can evaluate the cost month by month against the profit the site helps generate during that period. The payment model does not guarantee a return, but it lets you assess the expense against business results without paying a large amount upfront.

If you want to compare options and costs, see our custom website pricing.

ROI and ROAS only help when they reflect real business data

ROI and ROAS are useful when they help you make a decision. There is little value in a campaign showing a high ROAS if too little money remains after costs. The same goes for a website with lots of traffic if you do not know whether those visits lead to inquiries and paid work.

Start with the information you already have: costs, revenue, direct expenses, and the number of jobs actually completed. You do not need a perfect tracking system right away. What matters is separating what you know from what you are assuming.

Once you have reliable data, it becomes easier to decide whether to increase investment, change your approach, or put the money somewhere else.

Frequently asked questions about ROI and ROAS

What is a good ROAS?

There is no single ROAS that works for every business. It depends on your margin, ad spend, and other operating costs. A ROAS of 400% may be excellent for a business with a high margin but too low for one with a narrow margin. Always evaluate ROAS alongside profit.

Can ROI be negative?

Yes. ROI is negative when costs exceed revenue and the investment results in a loss. For example, if total costs are $5,000 and revenue is $4,000, the loss is $1,000 and ROI is -20%.

What is the difference between ROI and ROAS?

ROAS measures revenue generated relative to ad spend. ROI measures the return on an investment after accounting for relevant costs and profit. That is why a high ROAS does not necessarily mean a campaign is profitable.

How do you calculate ROAS?

ROAS = revenue attributed to ads / ad spend

Divide the revenue attributed to your ads by the amount spent on those ads. If you spend $1,000 and generate $4,000 in revenue, your ROAS is 4. To express it as a percentage, multiply by 100, giving you 400%.

How do you calculate ROI?

ROI = net profit / investment cost × 100

Divide the net profit from the investment by the investment cost, then multiply by 100. For the result to be meaningful, include the relevant costs and use the same method consistently.

Does Google Ads ROAS show actual profit?

Not necessarily. Google Ads can report conversion values assigned to actions such as a call, a form submission, or a purchase. If a conversion value is set incorrectly or does not reflect actual revenue, the reported ROAS will not accurately represent the business result. Check what is being measured and compare the reports with actual sales.