A recipe and a marketing budget have more in common than you might think. Both list out a set of ingredients and a cost. Both promise a result. And both will disappoint you badly if you skip any steps or eyeball the measurements. The recipe at least has the decency to tell you when something went wrong at the end. With marketing spend, a flawed ROI calculation can look perfectly fine on paper for months, sending budget toward campaigns that are silently underperforming.
Return on marketing investment (ROI) is the metric every marketing team uses to justify spend, defend budgets, and make the case for what is working. But calculating it accurately is harder than most guides let on. Get the math right and you get a number you can actually act on. Get the inputs wrong and you’re making major budget decisions based on a formula that tells a story instead of the truth.
For marketing teams looking to protect profit margins, grow sales, and spend smarter across different marketing channels, understanding exactly how to calculate and interpret marketing ROI is the foundation of every good marketing strategy.
Key takeaways
- The basic marketing ROI formula is: (Revenue generated minus Marketing Cost) divided by Marketing Cost, multiplied by 100. But the formula is only as reliable as the inputs going into it.
- Both “revenue generated” and “marketing cost” require deliberate decisions about what to include. These choices will meaningfully change your result and should be made consistently every time you calculate ROI.
- A 5:1 ratio (five dollars of revenue for every dollar of marketing spend) is widely considered a strong benchmark, but what counts as good marketing ROI varies by industry, channel, business stage, and how costs are defined.
- The 70/20/10 rule is a practical framework for balancing ROI risk across your marketing mix: 70% of budget toward proven tactics, 20% toward emerging strategies, and 10% toward experimental ideas.
- Platform-reported numbers regularly overstate revenue attributed to individual campaigns. Marketing teams that rely on platform data alone are often measuring ROI on a number that’s already inflated.
- Halo effects, meaning the revenue that ad campaigns drive indirectly through channels like organic search, branded search, and direct traffic, are frequently left out of marketing ROI calculations entirely, which causes brands to undervalue their best campaigns.
- Accurate measurement is the prerequisite to meaningful ROI. Without it, the formula is just math applied to the wrong numbers.
The basic return on marketing investment formula
Before getting into the nuances, it helps to have the foundation locked in. The standard marketing ROI formula works like this:
Marketing ROI (%) = ((Revenue generated – Marketing Cost) / Marketing Cost) x 100
So if a campaign generated $100,000 in revenue and cost $20,000 to run, the ROI calculation would look like this:
($100,000 – $20,000) / $20,000 x 100 = 400%
That is a 400% return, or a 5:1 ratio of revenue to spend. A positive percentage means the campaign brought in more than it cost. The higher the percentage, the better the return on that marketing investment.
You’ll also come across a few common variations of this formula. Each one is useful in different situations:
| Formula | Best used when… |
| Basic ROI (%): (Revenue – Marketing Cost) / Marketing Cost x 100 | Comparing campaign-level performance quickly |
| Gross profit ROI (%): (Gross Profit – Marketing Cost) / Marketing Cost x 100 | You want a more accurate picture that accounts for what it cost to produce the product |
| Campaign ratio: Revenue / Marketing Cost (e.g., 5:1) | Reporting to leadership or comparing channels side by side at a glance |
| CLV to CAC ratio: Customer Lifetime Value / Customer Acquisition Cost | Evaluating long-term profitability, especially for subscription or repeat-purchase brands |
Gross profit ROI tends to be the most useful for brands that want a realistic view of what marketing campaigns actually return, since it factors in production costs before calculating the return. A campaign that looks like a 400% ROI on revenue might look a lot more modest once you subtract what it cost to fulfill those orders.
For a deeper look at how these metrics connect to broader marketing strategy, the Prescient AI guide to ROI in marketing covers how to think about these numbers in the context of your full marketing mix.
Why “revenue generated” is harder to define than it looks
Revenue sounds like the easy part. It’s not. The number you drop into your marketing ROI formula determines everything, and there are real decisions to make before you get there.
The attribution window problem
Most brands track revenue from a marketing campaign over a short window, often seven or 30 days. But marketing activities often influence purchases that happen much later. A customer who sees a YouTube ad in January might not buy until March. A short attribution window would not count that sale as revenue generated by that campaign, making the campaign look worse than it actually was and potentially leading to cuts in spend that was working.
Platform-reported versus modeled revenue
Platform-reported revenue, the number you see in Meta, Google, or TikTok dashboards, is self-reported by those platforms. Each platform takes credit for every conversion it touched, with no coordination between them. The result is that your total platform-attributed revenue across all channels almost always exceeds your actual total revenue. When you use those numbers to calculate ROI, you’re calculating marketing ROI on a number that doesn’t exist.
Modeled revenue (a metric Prescient uses), by contrast, looks at the statistical relationship between your marketing spend across channels and your actual revenue over time. It doesn’t rely on clicks or pixels and reflects what actually happened.
Halo effects: The revenue your formula is probably missing
When a prospecting campaign runs on paid social media, it does more than drive direct conversions. It increases website traffic, lifts branded search volume, and generates more direct visits as people see the ad, scroll past it, and come back later on their own. This spillover revenue, what Prescient calls halo effects, often exceeds the direct revenue a campaign generates, yet it almost never shows up in a standard ROI calculation.
If your marketing ROI formula only counts revenue that came from a direct click on an ad, you’re systematically undercounting what your best top of funnel marketing efforts actually generate. Over time, this leads to underinvestment in awareness marketing activities that are quietly driving business growth.
What should (and shouldn’t) count as marketing cost
The denominator in the marketing ROI formula needs just as much thought as the revenue number. What you include will shift your result and, more importantly, needs to stay consistent if you want ROI calculations that are actually comparable over time.
Here is a quick breakdown of what different teams typically include:
| Cost type | Include? | Context |
| Ad spend | Yes, always | This is the core of your marketing investment |
| Creative and production costs | Often yes | Especially if you’re comparing marketing efforts where creative costs varied significantly |
| Agency and tool fees | Sometimes | Useful for a full-picture ROI; may be left out for campaign-level comparisons |
| Marketing team salaries | Occasionally | More common in executive-level reporting; rarely used for campaign ROI |
The most important rule here is not which costs you include, it’s that you include the same costs every time you calculate ROI. Changing the definition mid-year makes it impossible to compare results across campaigns, channels, or time periods.
If you’re running ROI calculations to compare how different marketing channels performed against each other, a narrower cost definition focused on ad spend keeps the comparison clean. If you’re presenting to your CFO or board to justify marketing expenditures, a broader definition that includes production costs and advertising spend will be more credible.
For more detail on how to think through cost definitions, including where contribution margin fits in, the Prescient guide to customer acquisition cost (CAC) walks through this in depth (this article also covers customer lifetime value).
How to calculate return on marketing investment: A step-by-step walkthrough
Now that the inputs make sense, here’s how to actually run the calculation from start to finish.
Step 1: Define your time period
Pick the window you are measuring: a campaign flight, a quarter, a specific month, or a full year. Whatever you choose, make sure your revenue and your marketing costs are from the same window. Mixing a campaign that ran for six weeks with revenue tracked over ninety days will produce a number that doesn’t mean much.
Step 2: Decide what counts as revenue for this calculation
Will you use platform-reported revenue, independently modeled revenue, or revenue tracked through your ecommerce platform? If you are doing campaign-level ROI calculations, make sure your revenue figure is attributed to that specific campaign and not cross-contaminated with other campaigns that were running at the same time.
Step 3: Decide what counts as marketing cost
Using the framework above, nail down your cost definition before you run the numbers. If you’re looking to measure marketing ROI at the campaign level, total ad spend is the right starting point.
Step 4: Apply the marketing investment formula
Here is a worked example with hypothetical numbers:
A brand runs a paid social media campaign for one quarter. Total ad spend: $50,000. Revenue attributed to that campaign through their measurement platform: $225,000.
ROI = ($225,000 – $50,000) / $50,000 x 100 = 350%
That is a 4.5:1 revenue to spend ratio, which is solid performance. But context matters. If that same brand ran a similar campaign last quarter and saw 500%, something changed and it is worth understanding what.
Step 5: Interpret the result in context
A marketing ROI percentage is not a verdict on its own. Ask: How does this compare to previous campaigns? How does it compare to the industry benchmark for this marketing channel? Was this a campaign meant to generate direct sales or build awareness? Are the revenue numbers you are using reliable, or are they self-reported by the platform?
Context is what turns a marketing ROI calculation into an actual decision.
What a good return on marketing investment actually looks like
The number you will most often see cited as a benchmark for good marketing ROI is 5:1, meaning five dollars of revenue for every dollar of marketing spend. That translates to a 400% ROI using the standard formula. A 10:1 ratio is considered exceptional. An ROI below 2:1 often signals that costs exceed the real profit being generated by marketing efforts once you factor in things like cost of goods.
But these benchmarks deserve some scrutiny, especially in a few areas that meaningfully affect what good marketing ROI looks like for your brand:
- Industry: Brands with high gross profit margins, like software or digital products, can sustain lower ROI ratios than brands with thin margins, like consumer packaged goods or apparel.
- Channel: Direct response campaigns typically show higher ROI than awareness campaigns because their impact is easier to measure directly. That does not mean awareness campaigns have worse ROI, just that their return is harder to quantify with standard attribution.
- Business stage: An early-stage brand investing heavily to build awareness will naturally see lower ROI in the short term than a mature brand running campaigns to a warm audience.
- Cost definition: A brand using a narrow cost definition (ad spend only) will almost always report a higher ROI than one using a broader definition that includes production costs, agency fees, and tools. Neither is wrong, but they’re not comparable.
The most important benchmark is your own historical performance. A good marketing ROI is one that is improving over time and that you can actually trust the math behind.
The 70/20/10 rule and how it relates to ROI
The 70/20/10 rule is a budget allocation framework that has become something of a standard in marketing strategy. It works like this: allocate 70% of your marketing budget to proven tactics that consistently generate revenue, 20% to emerging marketing channels or strategies that show promise but are not yet fully proven, and 10% to experimental ideas or marketing efforts that might not pan out but could become your next best channel.
The connection to ROI is straightforward. This framework is really a way of managing the risk profile of your marketing investment across the board. If you put everything into proven tactics, you protect short-term marketing ROI but stop learning. If you over-invest in experiments, you burn marketing budget before you’ve figured out what works. The 70/20/10 split is an intentional way to keep your overall return on marketing investment healthy while still leaving room for the campaigns that will drive business growth next year.
For most brands, the trickiest part of applying this framework is accurately knowing which marketing campaigns belong in each bucket. That requires measurement that is reliable enough to actually tell you what is working at the campaign level, not just what platforms are claiming credit for.
Why your ROI numbers might be lying to you
This is the part most marketing ROI guides skip. You can apply the formula perfectly and still end up with a number that does not reflect reality. Here’s why that happens.
Platform attribution inflation
Every ad platform has a financial incentive to show you the highest possible return on its own ad spend. When multiple campaigns run simultaneously across different marketing channels, each platform counts the same conversion in its own reporting. Your Google campaigns generate revenue. Your Meta campaigns generate revenue. Your TikTok campaigns generate revenue. Add it all up and you have a total that’s larger than your actual revenue. That’s a structural feature of how platform attribution works.
When you calculate marketing ROI using these numbers, you’re measuring ROI on fictional revenue. The formula is correct. The inputs are not. We’re sure you already see the problem with using these numbers to shape your marketing strategy.
Overlapping credit between campaigns
Even within a single platform, multiple campaigns can claim credit for the same conversion. A prospecting campaign introduces someone to your brand. A retargeting campaign closes the sale. Both show up in your platform report as having generated that revenue. Your marketing ROI calculations for each campaign look strong. Your total reported revenue across campaigns looks strong. But you only sold one thing to one person.
What this means for budget decisions
Marketing teams that rely on platform-reported numbers to calculate ROI will consistently overestimate the performance of their paid campaigns and underestimate the value of the marketing channels that influence without getting the last click. Over time, this means budget flows toward campaigns that look good on platform dashboards and away from awareness-building marketing activities that are genuinely driving sales growth.
Over time, this degrades your marketing performance. Yes, your marketing strategy will look hyper-effective in the short-term, but you’ll quickly go through the entire pool of leads your awareness campaigns had generated. With no more leads for your lower funnel marketing efforts to convert, marketing performance tanks, and fast.
The fix is to calculate marketing ROI against revenue numbers that are independent of the platforms doing the spending. Marketing mix modeling, which looks at the statistical relationship between your actual spend across channels and your actual revenue over time, is one of the most reliable ways to get there. For more on what accurate marketing measurement actually looks like, see the Prescient AI guide to marketing effectiveness.
Where Prescient comes in
Everything described above, halo effects, platform attribution inflation, overlapping marketing campaign credit, campaign-level saturation curves, these are exactly the problems Prescient AI was built to solve. The platform uses marketing mix modeling to give brands a measurement layer that is fully independent of the platforms spending their money. That means ROI calculations based on what actually happened, not what Meta or Google decided to claim credit for. Campaign-level reporting, daily model updates, and halo effect measurement all come standard, so your team can calculate return on marketing investment with confidence and act on numbers you can actually trust. Book a demo to see how it works for your brand.
Marketing investment FAQs
What is the 70 20 10 rule in marketing?
The 70/20/10 rule is a budget allocation framework where 70% of marketing spend goes toward proven tactics that consistently generate revenue, 20% goes toward emerging strategies or channels that show real promise, and 10% goes toward experimental ideas that may not pan out but could reveal your next best-performing channel. The goal is to keep your overall return on marketing investment healthy in the short term while still testing and learning for the future.
How do you measure marketing ROI?
The standard approach is to subtract your marketing costs from the revenue those campaigns generated, divide by the marketing costs, and multiply by 100 to get a percentage. The harder part is making sure the revenue number you are using is accurate. Platform-reported numbers frequently overstate attributed revenue because each platform takes credit for conversions independently. More reliable marketing ROI calculations use independently modeled revenue or data from a marketing mix model, which measures the actual relationship between your spend and your sales over time.
What is a good ROI for marketing?
A 5:1 ratio, meaning five dollars of revenue generated for every dollar of marketing spend, is the benchmark most often cited as strong performance. A 10:1 ratio is exceptional. Below 2:1 often means costs are eating into profit margins once production and fulfillment costs are factored in. That said, what counts as good marketing ROI varies significantly by industry, channel, business stage, and how you have defined your costs. The most useful benchmark is always your own historical performance over time.
How can your ROI be calculated if your marketing campaign costs $10,000 and generates $15,000 in additional sales?
Using the basic formula: ($15,000 – $10,000) / $10,000 x 100 = 50%. That is a 1.5:1 ratio. While the campaign generated more than it cost, this result falls below the 5:1 benchmark that most brands target for “good” marketing ROI. Before drawing conclusions, it’s worth examining whether the $15,000 figure is platform-reported revenue or an independent measurement, how much revenue was driven indirectly through channels like organic or direct traffic, and whether the cost definition you are using is consistent with how you measure other campaigns.
