Your ROAS is 5:1, but you're losing money. How? ROAS ignores costs. ROI tells the real story. Here's the difference.

Defining ROAS (Revenue / Ad Spend)

ROAS is simple but misleading:

The Formula

ROAS = Revenue from Ads / Ad Spend

Example: $50,000 revenue / $10,000 ad spend = 5:1 ROAS

What ROAS Measures

How much revenue you got per dollar spent on ads
Platform-specific (Google ROAS, Facebook ROAS)
Doesn't include other costs
Problem: Ignores everything except ad spend

Defining ROI (Net Profit / Total Cost)

ROI is the real metric:

The Formula

ROI = (Revenue - Total Costs) / Total Costs × 100

Example: ($50,000 - $40,000) / $40,000 × 100 = 25% ROI

What ROI Measures

Actual profit after all costs
Includes: Ad spend, salaries, tools, overhead, COGS
Shows real business health
Advantage: Tells the truth

Why High ROAS Can Mean Negative Profit

Here's the trap:

Example: High ROAS, Negative Profit

Ad spend: $10,000
Revenue: $50,000
ROAS: 5:1 (looks great!)
But...
COGS: $30,000
Salaries: $15,000
Tools: $2,000
Total costs: $57,000
Profit: -$7,000 (losing money!)

The ROAS Trap:

5:1 ROAS sounds amazing, but if your margins are low and costs are high, you're losing money. Always calculate ROI, not just ROAS.

Blended ROAS: The MER (Marketing Efficiency Ratio)

MER is a better metric than platform ROAS:

What is MER?

Marketing Efficiency Ratio = Total Revenue / Total Marketing Spend

Includes all marketing channels
Shows overall marketing efficiency
Better than individual platform ROAS

How to Calculate MER

MER = Total Revenue / (Ad Spend + Marketing Salaries + Marketing Tools)

Example: $500,000 / ($100,000 + $50,000 + $10,000) = 3.1:1 MER

Moving Beyond the Ad Manager Dashboard

Platform dashboards are biased. Build your own:

What to Include

Revenue by channel (not just ad spend)
Total marketing costs (all-in)
ROI by channel (not ROAS)
MER (overall efficiency)
Profit by channel (revenue - costs)

Conclusion

ROAS is misleading—it can show 5:1 while you're losing money. ROI tells the truth by including all costs. Use MER for overall marketing efficiency, and build your own dashboard beyond platform metrics. The result? Real profitability, not vanity metrics.