Google Ads ROI Calculator

The maths behind it

Return on investment differs from return on ad spend by subtracting the cost of goods: ROI = (contribution − spend) ÷ spend, where ROAS = revenue ÷ spend.

ROAS answers how much revenue a dollar bought; ROI answers how much profit it returned. The second is the business question.

ROI = (ROAS × contribution margin) − 1, which converts one into the other directly.

Putting numbers to it

$40,000 of spend producing $100,000 of revenue is a 2.5 ROAS. At a 55% contribution margin that is $55,000 of contribution.

ROI = (55,000 − 40,000) ÷ 40,000 = 37.5%. Every dollar of advertising returned $1.375.

Via the shortcut: (2.5 × 0.55) − 1 = 0.375. Consistent.

At a 2.0 ROAS the same margin gives (2.0 × 0.55) − 1 = 10%, and at 1.82 it gives zero, the break-even established from the other direction.

Where it is unreliable

ROI as usually calculated ignores everything except the ad spend and the cost of goods. Agency fees, tooling, the time spent managing the account and the creative production all sit outside it and are real.

Including them typically cuts the reported figure substantially, and for a small account managed by an agency on a percentage of spend the difference can be most of the return.

How to act on this

Include the full cost of running the channel: fees, tools, creative, time, rather than the media cost alone. That is the number that answers whether the channel is worth operating.

Then compare it against the alternatives honestly, including doing nothing with the money. A 37.5% return on advertising is excellent; a 5% return after fees and time may not beat the alternatives.

Why ROI and ROAS diverge most where margins are thin

The conversion between them multiplies by the contribution margin, so at high margins the two track closely and at low margins they diverge sharply.

At an 80% margin a 2.0 ROAS is a 60% ROI. At a 30% margin the same 2.0 ROAS is a 40% loss. Identical advertising performance, opposite business outcomes.

That is why thin-margin retailers cannot use industry ROAS benchmarks at all, and why the first thing any account audit should establish is the contribution margin rather than the campaign structure. Without it, every performance number in the account is uninterpretable.

Beyond that, the cost of the landing pages, tracking and analytics that the channel requires. These are usually built once and maintained continuously, and they are a genuine cost of operating the channel.

For a small account they can exceed the agency fee, and leaving them out produces a return figure that flatters the channel against alternatives that do not need them.

Including them also makes the comparison between running the channel in-house and outsourcing it a fair one.

Where an agency is paid a percentage of spend, that structure also creates an incentive to spend rather than to profit, which is worth recognising when the recommendation is always to increase budget.

Search and Display should never be measured together, and the default campaign settings make it easy to do so accidentally. Display inventory converts at a fraction of Search rates and at a much lower cost per click, so a combined figure describes neither. Opting out of the Display Network on a Search campaign is a single checkbox and it is the first thing to check on any campaign whose numbers look strange.