Marketing ROI, ROAS, CPA and CAC: how to measure your marketing

To measure marketing, compare what it brought you with what it cost you, in profit and not just in sales. Marketing ROI shows whether the overall investment left you with a profit. The other metrics, such as ROAS, CPA, CAC and LTV, show where you are gaining and where you are losing.

These metrics look alike, but they answer different questions. If you mix them up, you may cut a channel that brings in profit or scale up one that is losing money.

The five metrics in plain words

• ROI (return on investment): the net profit marketing brought in, divided by its total cost. Net profit is the gross profit from sales minus the cost of marketing, and the cost includes advertising, fees, production and tools. It answers the question “was it worth it overall?”
• ROAS (return on ad spend): revenue from advertising divided by ad spend. It measures only the money that went to the platform, and only revenue, not profit. It answers the question “how much revenue did each euro of advertising bring in?”
• CPA (cost per action): ad spend divided by the number of actions you wanted, such as purchases, enquiries or calls. When the action is an enquiry, it is also called cost per lead.
• CAC (customer acquisition cost): the total marketing and sales cost for a period, divided by the new customers in the same period. It differs from CPA because it measures customers, not actions, and includes all costs, not just advertising.
• LTV (lifetime value): the gross profit a customer leaves you, on average, over the whole time they buy from you. To start with: average gross profit per purchase times the average number of purchases per customer.

The most useful combination is CAC alongside LTV. If a customer leaves you more profit over time than it costs to acquire them, your marketing is building value, even if the first purchase doesn't make a profit.

A hypothetical example with numbers

The figures that follow are hypothetical and rounded, so you can see how the formulas work. They are not market averages or client data. An e-shop spends €1,000 on advertising in one month and €1,000 on management and content production, €2,000 in total. The advertising brings in 100 orders with an average value of €60, so €6,000 in revenue. The gross profit, after the cost of the products and shipping, is 40% of revenue, which is €2,400. Of the 100 orders, 80 are from new customers.

• ROAS: €6,000 revenue divided by €1,000 advertising, which is 6. Each euro of advertising brought in €6 of revenue.
• CPA: €1,000 advertising divided by 100 orders, which is €10 per order.
• CAC: €2,000 total cost divided by 80 new customers, which is €25 per new customer.
• ROI for the month: €2,400 gross profit minus €2,000 cost makes €400 net profit, and €400 divided by €2,000 makes 20%.
• LTV: if a customer buys three times on average and leaves €24 of gross profit each time, their value is around €72, almost three times the CAC.

A ROAS of 6 sounds impressive, but after the other costs the month's profit is small. A useful calculation: the ROAS at which gross profit only just covers the advertising is 1 divided by the margin. With a 40% margin it comes to 2.5, with 20% it comes to 5. So with a 20% margin, the same ROAS of 6 would barely cover the advertising and would leave a loss after fees and production.

How to measure marketing: what to track first

You don't need all five metrics from day one. Start in this order:

1. Define what counts as a result for you: a purchase, a quote request, a booking or a call. Write it down and don't change it every month.
2. Set up proper conversion tracking on your site and platforms, with a cookie consent mechanism, and make a test submission to check that it is recorded.
3. Find out your gross profit margin per product or service. Without it, no metric can tell you whether you are making money.
4. Every week, track CPA per channel, and ROAS wherever there are online sales.
5. Every month, calculate CAC with all costs included and with the actual new customers from your e-shop or CRM.
6. Once you have several months of history, calculate LTV and compare it with CAC.

For services with a sales cycle of several weeks, also look at what percentage of enquiries turn into deals. That is where you see whether cheap enquiries are also good ones, and you find it in your CRM, not in the ad platform.

Why last-click data isn't the whole story

Last-click is the rule that gives all the credit for a sale to the last click before it. It is simple, but it is unfair to the channels that work earlier in the journey. Someone might discover you through a Reel, read one of your guides and buy a week later, after typing your name into Google. With last-click, all the credit goes to search.

• Don't add up the conversions from Google Ads and Meta. Each platform measures by its own attribution rules and often claims the same sale. For the total, rely on the orders and enquiries that actually reached you.
• Check in each tool's settings which attribution model it uses, because the options change over time.
• Ask customers where they found you, on the form or over the phone. Their answer fills in what the tools can't see.
• Look at the overall picture too: when you increase or reduce your awareness advertising, what happens to total sales and to searches for your name over the following weeks?

With cookie consent, part of the visits are estimated with models or not recorded at all. At THPAUL we define from the outset which actions count and track them with GA4, Tag Manager and pixels for Meta and Google, respecting visitor consent, so that you can trust your numbers.