ROI vs. ROAS: How To Explain the Difference to Clients

Marketing agencies constantly analyze performance metrics to determine the success of campaigns. But when it comes to explaining Return on Ad Spend (ROAS) and Return on Investment (ROI) to clients, things can get murky. While both are essential KPIs, they serve different purposes, and misunderstanding them leads to confusion.

Let’s say you’re running a Google Ads campaign for a client with a 5:1 ROAS—meaning they generate $5 in revenue for every $1 spent on ads. 

That sounds like a win, right? 

But when factoring in product costs, fulfillment, and overhead, their actual ROI may be just 10%, or worse, negative. 

If the agency reports only the ROAS, the client may assume the campaign is highly profitable when, in reality, they could be losing money. And if this becomes a long-term pattern, you risk losing the client altogether. 

This article breaks down when to use ROAS vs. ROI as core metrics, how to track both effectively, and most importantly, how to communicate their significance to clients. By the end, you’ll have a clear framework for determining which metric to prioritize and how to use them together to drive real business growth for your clients. 

Defining ROAS and ROI

To successfully track campaign performance, agencies need to distinguish the difference between Return on Ad Spend (ROAS) and Return on Investment (ROI). While both metrics assess financial outcomes, they focus on different aspects of profitability. Let’s break them down: 

ROAS: The Advertising Efficiency Metric

Return on Ad Spend (ROAS) measures the direct revenue generated from advertising costs without considering other business expenses. It answers the question: How much revenue did we generate per dollar spent on ads?

ROAS Formula:

• Revenue from Ads = Total sales directly attributed to ad campaigns

• Ad Spend = Total advertising cost

Example of ROAS in Action

A PPC campaign for a SaaS company generates $25,000 in revenue from $5,000 in Google Ads spend.

A 5.0 ROAS means the company earned $5 for every $1 spent on ads. This helps assess Google ad budget efficiency, but it doesn’t indicate overall profitability since subscription fulfillment, customer support, and overhead costs are not included.

ROI: The Broad Profitability Metric

Return on Investment (ROI) measures overall profitability by accounting for all costs associated with a campaign—not just ad spend. It answers the key question: Was this marketing effort actually profitable after all expenses?

ROI Formula:

• Net Profit = Total Revenue – Total Costs (including advertising, product costs, salaries, fulfillment, and overhead)

• Total Investment = The total amount spent on the campaign

Example of ROI in Action

An agency runs a paid search campaign for an ecommerce brand selling high-end headphones. The campaign generates $50,000 in revenue from $10,000 in ad spend. At first glance, this 5:1 ROAS looks great.

But after factoring in:

• Product costs: $20,000

• Shipping and fulfillment: $5,000

• Agency fees: $7,000

The net profit is only $8,000, making the ROI:

This means the true profitability of the campaign is 25%, despite a seemingly high ROAS.

Why Do Agencies Need Both Metrics?

• ROAS tells you if an ad campaign is driving revenue efficiently.

• ROI tells you if the entire marketing investment is actually profitable.

While ROAS is often the first indicator of performance, agencies should also track PPC metrics like ROI to measure long-term success and profitability.

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The Difference Between ROAS and ROI 

Agencies often face a common challenge: a campaign that looks like a success based on one metric tells a different story when viewed through another lens. 

This is why understanding the distinction between ROAS and ROI becomes so important.

Clients may see a high ROAS and assume their marketing efforts are profitable, but if overall business costs aren’t factored in, they could be breaking even or even losing money. On the other hand, a campaign with low ROAS might seem underwhelming at first, yet still contribute to long-term business growth and profitability when considering all revenue streams.

If you're only reporting on the numbers that make you look good, you're not giving your clients an accurate picture of what's actually going on. They might think that everything is going well when in reality, it's not. This can lead to a very awkward meeting in a few months where the client asks for an ROI on marketing spend so far.

Guy Hudson, Founder, Bespoke Marketing Plans

Agencies that recognize when to emphasize each metric ensure that clients understand not just the efficiency of their ad spend but also its true impact on their bottom line.

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When To Make ROAS a Core Metric

There are times when Return on Ad Spend should be the primary performance indicator for a campaign. Since ROAS measures revenue generated per dollar spent on advertising, it’s most useful for optimizing ad efficiency and making real-time budget decisions.

When ROAS Matters Most

1. Short-Term, Performance-Driven Campaigns

• For PPC, social media ads, and display campaigns, ROAS provides immediate insights into ad effectiveness.

• Agencies adjust bids, targeting, and creatives based on real-time ROAS data to improve results.

2. Ecommerce & Direct-Response Advertising

• ROAS is an important ecommerce KPI for brands that rely on paid ads for quick conversions.

• Example: A Google Shopping campaign for a clothing retailer needs at least a 3:1 ROAS to break even after product costs.

3. Budget Allocation & Scaling Paid Ads

• If an agency is running multiple ad campaigns, ROAS helps determine where to increase or decrease spend.

• A Facebook campaign with a 6:1 ROAS may deserve a bigger budget, while a campaign with a 2:1 ROAS might need adjustments.

4. Evaluating Ad Channel Effectiveness

• Clients often ask: Should we spend more on Google Ads vs. Facebook Ads?

• ROAS helps agencies compare platforms by showing which one drives the most revenue per dollar spent.

ROAS or CPR are two of the most important Facebook metrics that our clients care about. Making money is the aim of the game, after all.

Sam Yielder, Paid Media Executive, Squidgy

Limitations of ROAS

While ROAS is great for measuring ad efficiency, it doesn’t account for:

• Product costs

• Fulfillment and overhead expenses

• Customer Lifetime Value (CLV)

This is why agencies must also track Return on Investment, especially for any long-term strategies. More on that to come: 

When To Make ROI a Core Metric

Simply put, Return on Investment provides the big-picture view of profitability. Agencies should prioritize ROI when evaluating long-term marketing success rather than just short-term revenue gains.

When ROI Matters Most

1. Full-Funnel Marketing Strategies

ROI is essential when multiple marketing efforts contribute to conversions, such as SEO, email, and paid ads.

Example: A marketing agency running Google Ads for a client may see a low initial ROAS, but over time, those leads convert into high-value, long-term customers, improving ROI.

2. High Overhead or Production Costs

When a business has significant costs beyond ad spend, ROI ensures those expenses are factored into profitability.

Example: A Direct to Consumer furniture brand might need a higher ROI threshold because of manufacturing, warehousing, and shipping expenses.

3. Scaling a Business Beyond Paid Ads

Relying solely on ROAS is misleading if long-term customer value isn’t considered.

Example: A subscription-based brand may have a low initial ROAS, but if customers stay subscribed for a year, ROI is much higher.

4. Determining True Business Growth

Investors, stakeholders, and agency clients care about overall profitability, not just ad revenue. ROI helps agencies justify marketing investments and prove they’re driving sustainable business growth.

One of the main challenges of demonstrating ROI to our clients is gauging their understanding of PPC metrics while also aligning their expectations of performance. Explaining the return ROI can be challenging because it isn't as simple as equating ROI to ad spend—the agency's impact extends beyond direct advertising efforts to some factors that are unmeasurable, like our expertise in branding, market research, competitor analysis, and customer journey mapping.

Steph Busia, Account Manager, Moxie Tonic

Limitations of ROI

While ROI provides a full profitability picture, it:

• Doesn’t offer real-time ad performance insights

• Can take months to fully calculate

• Requires accurate cost tracking across multiple departments

This is why agencies should track both ROAS and ROI—optimizing ad efficiency while ensuring long-term profitability at the same time. 

Highlight the most important aspects of your client’s marketing performance in an easy-to-read report using Ask AI. This feature summarizes important findings and showcases your agency’s value front and center. Try it out with your 14-day free trial of AgencyAnalytics. 

Optimizing Both ROAS and ROI

To maximize marketing performance, agencies need to strike a balance between short-term ad efficiency (ROAS) and long-term profitability (ROI). Optimizing both ensures that your clients will see immediate returns while building sustainable business growth. Let’s start with ROAS: 

How To Improve ROAS

1. Refine Targeting & Audience Segments

Use first-party data, lookalike audiences, and retargeting to reach high-converting customers.

Example: A PPC agency lowers cost-per-click (CPC) by excluding low-intent audiences and focusing on those with higher purchase intent.

2. Optimize Ad Creatives & Copy

A/B test headlines, images, and CTAs to increase click-through rates (CTR).

Example: A Facebook ad with a clear product value proposition and a compelling CTA will likely yield a higher ROAS.

3. Adjust Bidding Strategies

Lower bids on underperforming keywords and increase the PPC budget for high-converting campaigns.

Example: A Google Ads campaign shifting budget to high-ROAS search terms could quickly boost overall returns.

4. Improve Landing Page Conversion Rates

Ensure fast-loading, mobile-optimized landing pages with clear CTAs to reduce bounce rates.

Example: Even a marginal increase in conversion rate in a client’s mobile marketing analytics can significantly improve ROAS without additional ad spend by optimizing the mobile user experience.

How To Improve ROI

1. Reduce Customer Acquisition Costs (CAC)

Leverage organic content, email marketing, and referrals to lower reliance on paid ads.

Example: An agency helping an ecommerce brand build an email list reduces ad spend per sale over time, increasing ROI by creating a new opportunity for conversions.

2. Increase Customer Lifetime Value (CLV)

Implement upsells, cross-sells, and subscription models to maximize long-term revenue.

Example: A beauty subscription box brand upsells one-time buyers with an exclusive discount on a 3-month subscription at checkout. Even if the initial ROAS is lower, a higher customer lifetime value from recurring purchases boosts long-term ROI.

3. Optimize Operational Efficiency

Automate reporting, streamline workflows, and cut unnecessary expenses.

Example: Using automated client reporting reduces agency labor costs, improving overall profitability.

4. Track ROI Across All Marketing Channels

Ensure clients see the full impact of all marketing investments, not just ad spend.

Example: An SEO campaign may not generate instant ROAS, but over time, organic traffic lowers paid acquisition costs and boosts ROI.

How To Track ROI and ROAS Progress

Tracking ROAS and ROI for multiple clients is time-consuming. To report on these metrics successfully, agencies need a streamlined approach that eliminates manual data collection and reporting errors. 

Enter AgencyAnalytics. Marketers automate data aggregation from multiple ad platforms, ensuring that ROAS is accurately measured in real time. By integrating Google Ads, Facebook Ads, and other marketing channels into a single dashboard, agencies gain instant visibility into ad performance and efficiency without switching between multiple tools.

Beyond ad spend efficiency, we’ve mentioned that ROI tracking requires a broader view that includes various metrics such as total marketing costs, customer lifetime value, and operational expenses. AgencyAnalytics simplifies tracking hundreds of metrics by allowing agencies to connect revenue data from ecommerce platforms, CRM systems, and 80+ other marketing platforms your clients are using. This ensures ROI calculations reflect actual profitability, not just surface-level ad performance.

One innovation that has significantly improved client satisfaction is our customized goal tracking within AgencyAnalytics dashboards. We set up tailored KPIs that align with each client’s specific objectives—whether it’s ROAS, lead volume, or engagement metrics. 

Additionally, we integrate real-time insights with automated annotations, so clients can easily see the impact of campaign optimizations or seasonal trends. This has helped clients feel more in control and better understand how our efforts directly contribute to their business success. 

Shay Cohen, CEO & Owner, SFB Digital Marketing

One of the biggest challenges agencies face is explaining complex metrics to clients. AgencyAnalytics makes this easy with automated, customizable reports that transform raw data into clear visualizations. Agencies also schedule reports that highlight both ROAS and ROI, helping clients understand the true impact of their marketing investment. 

No one likes being overwhelmed with spreadsheets. AgencyAnalytics integrates with 80+ tools, giving clients a complete view of their marketing performance in one place. Try it free for 14 days.

Summary & Key Takeaways

Both ROAS and ROI play an important role in measuring the success of a marketing campaign, but knowing when to prioritize each metric is key. 

Clear client communication is just as important as tracking performance. Clients often focus on how much revenue their digital marketing campaign generates per advertising dollar spent, but it’s up to agencies to explain why ROI offers a more complete picture of profitability. Setting clear expectations and aligning reports with client goals helps strengthen client relationships and showcase the true impact of digital ad campaigns.

With AgencyAnalytics, agencies seamlessly track ROAS and ROI, automate performance reporting, and provide clear insights into advertising spend—all from a single platform. Instead of spending hours compiling data, agencies focus on delivering high-impact marketing campaigns that drive real business growth.