What do customer acquisition cost, ROI and ROAS mean in a marketing report?
Customer acquisition cost is what you spent on marketing divided by the new customers it won. ROI compares profit with cost; Google Ads Help calls it the ratio of your net profit to your costs. ROAS, return on ad spend, is the revenue from ads divided by what the ads cost, so it counts revenue, not profit. A high ROAS can still lose money once the cost of doing the work is counted, so ask for the cost per job won as well.
The three terms
| Term | How it is worked out | What it tells you |
|---|---|---|
| Customer acquisition cost (CAC) | Marketing cost ÷ new customers won | What it costs to win one customer |
| Return on investment (ROI) | (Revenue − costs) ÷ costs | Whether the marketing made a profit, depending on which costs are counted |
| Return on ad spend (ROAS) | Revenue from the ads ÷ ad cost | Revenue per unit of ad spend, before any other cost |
What Google's pages say
Google Ads Help says ROI is "the ratio of your net profit to your costs", and that the exact method depends on the goals of your campaign. For physical products, it says the cost of goods sold is the manufacturing cost plus your advertising costs. For a business that generates leads, it says the cost of goods sold is just the advertising costs and revenue is what you make on a typical lead, and it calls what it costs to get a lead the cost per action, or CPA.
Its page on Target ROAS bidding gives the formula as sales divided by ad spend, times 100%: sales of five times the ad spend is a ROAS of 500%. It also says you need to set values for the conversions you track before using that strategy, so the revenue behind a ROAS figure is only as good as the values entered.
One example, in plain numbers
Made-up numbers: a month of ads costs 1,000 and brings four new jobs at 1,500 each, so revenue is 6,000. Doing the work costs 3,600.
ROAS is 6,000 ÷ 1,000, or 600%. Customer acquisition cost is 1,000 ÷ 4, or 250 per new customer. Profit is 6,000 − 3,600 − 1,000 = 1,400. Counting every cost, as Google's product example does, ROI is 1,400 ÷ 4,600, about 30%. Divide the same profit by the ad cost alone and it reads 140%. Reports differ in which costs they count, so ask which one yours uses.
If the work had cost 5,100 instead, the ROAS would still read 600%, but the month would lose 100. That is why ROAS alone cannot tell you whether ads pay.
The number a service business can always work out
From your own records you can work out the cost per job won for each channel: what the channel cost, including any agency fee, divided by the jobs won from it. That needs every inquiry recorded with its channel and followed to won, lost or still open. Set it against what a customer is worth, which the related answer on that topic shows how to work out. The ad-report terms such as cost per click and impressions are in the related answer on those.
What to ask when a report shows ROAS
- What revenue does it count: jobs actually paid, quotes, or a value set in the ad account?
- Does it include repeat customers who would have called anyway, which your records would count as direct?
- What is the cost per job won from the ads, with the agency's fee included?
- When the report says ROI, is the profit divided by all costs or by the ad cost alone?
Sources
Related answers
- What do cost per click, impressions and reach mean in an ad report?
- How do you work out what a customer is worth to your business?
- What should a marketing report show a small business owner?
Lead generation and lead tracking
A lead that waits a day goes cold, and a lead with no source teaches you nothing. Ascent Vision fixes both.