Marketing ROI formula
Marketing ROI is the profit a campaign produced, minus what it cost, divided by what it cost. OpenStax’s marketing text gives the basic form: take the sales, subtract the marketing costs, divide by the marketing costs and multiply by 100.[1] This calculator adds two refinements that make the figure honest: margin and baseline.
Why margin and baseline change the answer
| Basis | Adjustment | Calculation | ROI |
|---|---|---|---|
| Revenue only | $50,000 attributed | (50,000 − 10,000) ÷ 10,000 | 400% |
| Gross profit | × 60% margin | (30,000 − 10,000) ÷ 10,000 | 200% |
| Incremental gross profit | − $20,000 baseline | ($18,000 − 10,000) ÷ 10,000 | 80% |
Revenue-based ROI ignores the cost of the goods sold, so it flatters any campaign. Gross profit uses the contribution margin, the share of price left after variable costs.[3] The baseline removes sales that would have happened without the campaign, such as repeat customers who would have ordered anyway; you can estimate it from a holdout group, a comparable period or a region where the campaign did not run.
ROI vs ROAS
ROAS divides revenue by ad spend and is a campaign efficiency ratio; ROI divides profit by total marketing investment. Textbooks treat ROAS as one advertising metric among several,[2] and Google Ads’ “Conv. value / cost” is ROAS, not ROI.[4] A 4x ROAS can be a negative ROI at a 20% margin. Check ROAS in the ROAS calculator; find the ROAS that gives ROI = 0 with the break-even ROAS calculator.
ROI mistakes
- Leaving out non-media costs. Agency fees, software, creative production and staff time are part of the investment.
- Short windows for long sales cycles. B2B deals can close months after the campaign. Measure over the cycle, or use pipeline value with your sales conversion rate figures.
- Counting lifetime revenue on one side only. If revenue includes future repeat purchases, the cost side must include future retention spend. The customer lifetime value calculator keeps them consistent.
Frequently asked questions
How do you calculate marketing ROI?
(Gross profit from the campaign − marketing cost) ÷ marketing cost × 100. $30,000 profit on $10,000 cost = 200%.
What is a good marketing ROI?
Any ROI above 0% on incremental gross profit means the campaign paid for itself. Compare it with what the same money would earn elsewhere in the business.
Should ROI use revenue or profit?
Profit. Revenue-based ROI ignores the cost of what you sold and overstates the return, sometimes turning a loss into an apparent gain.
What is incremental revenue?
Revenue the campaign caused: attributed revenue minus the baseline you would have earned without it.
Sources
- Principles of Marketing, 10.3 The Use of Metrics in Evaluating New Products (marketing ROI)
- Principles of Marketing, 14.3 The Use of Metrics to Measure Advertising Campaign Effectiveness (ROAS, conversion rate)
- Principles of Accounting, Volume 2, 3.1 Contribution margin per unit and contribution margin ratio
- Understand your conversion tracking data (Conv. value / cost, Cost / conv.)