ROI vs ROAS: Which Is the Better Metric for Digital Ads?

 roi, roas, facebook-ads

The terms ROAS and ROI are often used interchangeably in the PPC world. ROI is optimized for strategy, ROAS is optimized for tactics, but some marketers use these terms interchangeably...

When measuring your ad campaigns, you will use either ROI (return on investment) or ROAS (return on advertising costs). But these measurements are not completely interchangeable: each has its own strategic uses.

ROI and ROAS return on investment from all your marketing efforts, including blogs, promotional articles, social media posts, offline advertising and PPC advertising campaigns. Every business should be able to control its marketing return on investment - and for those companies that do not use pay-per-click advertising, there is no need to worry about ROAS

ROI is a method for determining profitability in relation to program costs

Return on investment in Facebook (ROI) measures the return on your ALL investment. ROI is optimized for strategy, ROAS is optimized for tactics, but some marketers use these terms interchangeably. ROI measures advertising revenue relative to the value of these ads. This is a business-oriented indicator that is most effective in measuring how advertising affects the outcome of an organization.

ROI = profits-costs x 100 / costs

facebook-ads, roi, roas

An investor purchases a product that costs $5,000. Two years later, the investor sells the property for $10,000 We use the investment gain formula in this case.

ROI = (10,000 – 5,000) / (5,000) = 1 or 100%

In a simple way, if you invested $200 in a share of stock and its value rises to $220 by the end of the fiscal year, the return on the investment is a healthy 10%, assuming no dividends were paid.

In contrast, Facebook's Return on Ad Spend(ROAS) determines the gross income received from an advertising campaign. This is an advertiser-oriented measure that measures the x effectiveness of online advertising campaigns. this is one that you may have recently met, or you may not know at all.

ROAS stands for “Advertising Returns”. The formula is simple:

ROAS = revenue from ad campaign / cost of ad campaign

facebook-ads, roi, roas

For example, a Real Estate spends $3,000 on an online advertising campaign in a single month. In this month, the campaign results in revenue of $12,000. Therefore, the ROAS is a ratio of 4 to 1 (or 400 percent) as $12,000 divided by $3,000 = $4.

Revenue: $120,000 ___________________ ROAS = $4 OR 4 : 1

Cost: $3000

For every dollar that a company spends on its advertising campaign, it generates an income of $ 4.

ROAS differs from ROI in several basic aspects:

  • + ROAS uses revenue, not profit;
  • + ROAS only takes into account direct costs and not other related expenses;

Both ROAS and ROI are simple methods that can help management and marketers decide whether a campaign should start or continue or compare existing ones.

Understanding ROI and ROAS is an important step in launching a successful social media campaign .

Is this whole ROAS thing starting to make sense? Good. Let's put all this math into a simple rule of thumb.

  • If your ROAS is below 3: 1, rethink your marketing. You are probably losing money.
  • With ROAS 4: 1, your marketing makes a profit.
  • If your ROAS is 5: 1 or higher, everything works pretty well.

Remember, the meaning of online advertising is to make money, not to attract traffic or even conversion. If your online advertising brings no income, you need to change something. But if you do not track ROAS, you will not know where you need to make changes.

facebook-ads, roi, roas

Based on the goals of your campaign, constantly evaluate the effectiveness of your ads by delving into their numbers. This commitment will pay off if you spend your advertising dollars wisely.

Differences between ROAS and ROI

ROI is a business-oriented, strategy-oriented indicator that measures how advertising costs influence the performance of an organization. Earnings are counted only after deducting expenses.

ROAS is optimized for tactics and is an advertiser-oriented metric that measures the effectiveness of a digital advertising campaign .

It focuses on growing business through additional conversions and measures gross revenue per dollar spent on advertising. It acts as a comparison of the amount spent with the amount earned.

Let's take a simple look at the difference between ROI and ROAS.

facebook-ads, roi, roas

In this example, to break-even campaign 3, you need to reduce rates by 50%.

Using ROAS as our rate multiplier is easy to do in Excel, because ROAS is always a positive number (or 0); therefore, most marketers use ROAS to determine rates. If you are using ROI, because the number can be positive or negative, you need to build a more complex formula for calculating rates. In the end, the answer is the same: lower rates by 50% to break-even.

Although calculating the return on investment is an important factor in the development of a marketing campaign, this is not all. It does not help you decide whether the campaign will be successful. ROAS does more than just calculate potential returns; it helps you identify more specific tactics that are proven to produce sales. These methods can be applied to various marketing efforts and can help you attract new customers for years to come.

ROAS, on the other hand, does not calculate overall profitability as ROI. Instead, he looks closer at the methodology. To create the perfect digital ad campaign, you need to consider both ROI and ROAS, acting as quickly as possible to increase returns.

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Madhuranjan Kumar

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