How do you calculate marketing ROI?
Marketing ROI is the gross profit your ads bring in, minus the ad spend, divided by the ad spend. Revenue alone isn't enough, because each sale has its own cost. Enter your numbers above. The example spends $2,000 a month at $1.50 a click, which buys 1,333 clicks. 3% of them buy, so that's 40 new customers. Each places 2 orders of $80, for $6,400 in sales. At a 40% margin, that's $2,560 of gross profit, $560 after the ads, a 28% ROI.
ROAS can fool you. The example's return on ad spend is $3.20 in sales for each $1, which sounds strong. But at a 40% margin, you need $2.50 in sales per $1 just to cover the ads, so most of that $3.20 goes to the cost of the products. A business with a 60% margin, such as software or services, keeps $1,840 from the same ads. Your break-even ROAS is 1 divided by your margin.
Repeat orders often decide whether ads pay. If each customer bought only once, the example would lose $720 a month. The second order turns the loss into a profit. That's why many businesses judge ads by customer lifetime value, not the first sale. Enter the average number of orders a customer places over the period you care about, such as a year.
Know your limits. The example breaks even at $1.92 a click, or at a 2.34% conversion rate at today's price. At $2.00 a click, it loses $80 a month. At a 4% conversion rate, it makes $1,413. The chart under the calculator shows profit at every cost per click from near $0 to twice today's price, and the sliders let you test conversion and order value.