The Complete Guide to Calculating Google Ads ROI
Stop guessing. Learn how to calculate true ROI from your Google Ads campaigns and why most agencies get it wrong.
ProfitSEM Team
Profit-focused PPC experts
If you're spending money on Google Ads and can't confidently answer "What's my ROI?", you're not alone. Most businesses—and even most agencies—calculate ROI wrong.
They celebrate a 3x ROAS (Return on Ad Spend) without realizing they're actually losing money. They optimize for metrics that look good in reports but don't move the profitability needle.
This guide will teach you how to calculate true Google Ads ROI—the way that actually matters for your business.
Why Most ROI Calculations Are Wrong
Here's the typical conversation:
"Our agency is killing it! We're getting 4x ROAS on our Google Shopping campaigns!"
Sounds great, right? But here's what they're not telling you:
- ROAS ignores profit margins. A 4x ROAS on 10% margin products means you're barely breaking even.
- ROAS ignores operating costs. Fulfillment, customer service, returns—all eating into that "4x".
- ROAS doesn't account for LTV. That $50 first purchase might become $500 over 12 months.
- ROAS doesn't show attribution gaps. Assisted conversions and multi-touch journeys get ignored.
The Hard Truth:
A 5x ROAS can still mean you're losing money. A 2x ROAS might be incredibly profitable. It all depends on your unit economics.
The Right Way to Calculate Google Ads ROI
True ROI accounts for profit, not just revenue. Here's the formula:
Google Ads ROI Formula
ROI = (Net Profit - Ad Spend) / Ad Spend × 100%
Where: Net Profit = Revenue × Profit Margin - Operating Costs
Step-by-Step Calculation Example
Let's say you're an e-commerce furniture store:
Given:
- • Ad Spend: $10,000/month
- • Revenue from Ads: $45,000
- • Average Profit Margin: 35%
- • Operating Costs (fulfillment, returns): $5,000
Calculation:
- 1. Gross Profit = $45,000 × 35% = $15,750
- 2. Net Profit = $15,750 - $5,000 = $10,750
- 3. ROI = ($10,750 - $10,000) / $10,000 = 7.5%
That's a 4.5x ROAS but only 7.5% ROI. Not terrible, but not the "killing it" the agency claimed.
Advanced: Factoring in Customer Lifetime Value
For subscription businesses or businesses with high repeat purchase rates, you need to factor in LTV:
LTV-Adjusted ROI Formula
ROI = ((LTV × Conversion Rate × Clicks) - Ad Spend) / Ad Spend × 100%
SaaS Example
Given:
- • Ad Spend: $5,000/month
- • Clicks: 2,000
- • Conversion Rate: 3%
- • Average LTV: $2,400 (24 months × $100/mo)
- • Profit Margin: 80%
Calculation:
- 1. Conversions = 2,000 × 3% = 60 customers
- 2. Total LTV = 60 × $2,400 = $144,000
- 3. Net Profit = $144,000 × 80% = $115,200
- 4. ROI = ($115,200 - $5,000) / $5,000 = 2,204%
This is why SaaS companies can afford $100+ CPAs when e-commerce stores panic at $30.
Common Mistakes That Tank ROI
❌ Mistake #1: Ignoring Assisted Conversions
Someone clicks your ad, doesn't buy, then comes back through organic search and converts. Google Ads gets zero credit in last-click attribution, but it deserves some.
❌ Mistake #2: Not Accounting for Returns
If 15% of orders get returned, your actual revenue is 15% lower than what Google reports.
❌ Mistake #3: Forgetting Management Fees
If you're paying an agency 15% of ad spend, that's a real cost that reduces ROI.
❌ Mistake #4: Using Revenue Instead of Profit
This is the big one. Revenue means nothing if you're selling at a loss.
What's a "Good" Google Ads ROI?
This depends entirely on your business model and goals. Here are some benchmarks:
| Business Type | Good ROI | Great ROI |
|---|---|---|
| E-commerce (low margin) | 50-100% | 150%+ |
| E-commerce (high margin) | 100-200% | 300%+ |
| SaaS / Subscription | 500-1000% | 2000%+ |
| Lead Gen (B2B) | 200-400% | 500%+ |
| Local Services | 150-300% | 400%+ |
Action Items: Start Tracking True ROI Today
- 1. Calculate your true profit margin
Include COGS, shipping, returns, and operating costs. Be honest.
- 2. Set up enhanced conversions in Google Ads
Track actual revenue, not just conversions. Pass real transaction values.
- 3. Create a profit tracking spreadsheet
Track: Ad Spend, Revenue, COGS, Operating Costs, Net Profit, ROI weekly.
- 4. Review assisted conversions monthly
In Google Ads → Tools → Attribution → Assisted Conversions report.
- 5. Set ROI targets, not just ROAS targets
If you need 200% ROI to be profitable, optimize for that—not arbitrary ROAS.
Want Us to Calculate Your Google Ads ROI?
Get a free profit analysis. We'll audit your account, calculate your true ROI, and show you exactly where you're leaving money on the table.
Get Free Profit AnalysisConclusion
Calculating Google Ads ROI correctly is the difference between burning cash and printing money. Most agencies won't do this because it exposes when they're underperforming.
We track true ROI for every client because we only win when you're profitable. That's the ProfitSEM difference.
Last updated: October 24, 2025
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