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ROAS and ROI are both ratios that appear in every paid acquisition report, and conflating them is one of the most common analytical errors on growth teams. ROAS (Return on Ad Spend) measures revenue relative to ad spend only — it tells you nothing about profit. ROI (Return on Investment) measures profit relative to total investment including COGS, fulfilment, and overhead. A campaign can have a 4× ROAS and negative ROI if the product margin is thin enough.
ROAS = Revenue ÷ Ad Spend. ROI = (Revenue − Total Costs) ÷ Total Costs. The two ratios answer different questions and should never be used interchangeably.
cogs to 28000 and observe ROAS stays at 4x while ROI turns negative — confirm the exact breakeven COGS.returns = revenue * 0.20) and recompute both metrics using net revenue — note which metric is more affected.overhead_share to zero and recompute ROI — label this 'contribution-margin ROI' and explain when that framing is appropriate vs. misleading.Use these three in order. Each builds on the one before.
In one paragraph, explain the difference between ROAS and ROI and why a high ROAS does not guarantee profitability.
Walk me through the exact formulas for ROAS and ROI, what each includes and excludes, and how gross margin percentage determines the minimum ROAS needed to break even.
Our CFO wants a minimum 20% ROI on all paid channels. Walk me through how I would translate that ROI target into a target ROAS for our Google Shopping campaigns given our cost structure.