Check the difference between ROI vs ROAS and how to use each of the metrics in your digital marketing strategies.
Understanding the difference between Return on Investment ROI and Return on Advertising Spend ROAS is essential to accurately assess the impact of your marketing strategies.
After all, despite being crucial metrics that help determine the financial success of your campaigns, they have significant differences that must be considered before making the calculations.
Therefore, in this article, we will explore what ROI is, what ROAS is, and how to interpret their results to make strategic decisions. Follow along or, if you prefer, watch our video on the topic.
What is ROI
ROI or Return on Investment in English, is a metric used to evaluate the efficiency and profitability of an investment in relation to its cost. Therefore, its calculation, whose result is expressed as a percentage, is done using the following formula:
For example, let’s say a digital marketing campaign generated R10000 in sales and the total costs were R2000. The calculation would then be:
ROI = (10000 – 2000) / 2000 x 100 = 400
In other words, the company would have a 400% return on its initial cost with this campaign. Therefore, the result obtained from the calculation indicates whether an investment is profitable or not.
Thus, a positive ROI means the return is greater than the initial investment, while a negative indicates that the investment resulted in a loss for the company.
This makes it a crucial metric for the evaluation of the effectiveness of your investments in marketing, product development, technology, or any other area where costs and returns can be measured.
After all, this data helps companies make informed decisions about resource allocation and investment prioritization based on potential returns.
How to use ROI in digital marketing
When specifically discussing digital marketing, it’s important to follow some steps to ensure an efficient analysis, such as:
- Define clear objectives before calculating ROI, it’s essential to define where you want to go with the digital marketing campaign. For example, if you want to increase sales, generate qualified leads, increase website traffic, etc.
- Monitor costs and revenues to calculate ROI precisely, it’s important to track all costs associated with your campaign, including ad costs, agency, content creation, among others. Also, record the revenues generated directly by them.
- Analyze and interpret results besides finding out whether the result is positive or negative, it’s important to compare ROI between different campaigns or channels to identify which are generating the best results.
- Optimize strategies focus your resources on campaigns with higher ROI and adjust or stop those with low performance. Additionally, experiment with different approaches, channels, or segmentations to improve ROI over time.
- Continuously monitor finally, ROI is not a static metric. It should be continuously monitored to evaluate the impact of digital marketing strategies over time.
By effectively using ROI in digital marketing, companies can make more strategic decisions, allocate resources efficiently, and maximize return on investments in their marketing activities.
What is ROAS
On the other hand, ROAS or Return on Advertising Spend in English, is a specific metric used to evaluate the efficiency of digital advertising campaigns. That is, while ROI measures the overall return on an investment, ROAS focuses exclusively on the results obtained from advertising spending.
For this, the ROAS calculation is done as follows:
In other words, ROAS indicates how much money was generated in revenue for each monetary unit spent on advertising. For example, a ROAS of 500 means that for every R1 spent on advertising, R5 was generated in revenue.
ROAS is an important metric for digital marketing analysts as it provides a direct view of the performance of paid traffic campaigns.
After all, a high ROAS rate generally indicates effective ads that generate a significant return in terms of revenue. On the other hand, a low result may indicate the need for adjustments in advertising strategy and the budget applied to the campaigns.
What is the difference between ROI and ROAS
The difference between ROI and ROAS mainly lies in the areas each operates in, as well as the way they are calculated.
ROI considers the overall return on an investment, taking into account all costs and revenues associated with that investment, regardless of the revenue source. That is, it can be used in various areas, including marketing, product development, business expansion, among others.
On the other hand, ROAS is more specific and focuses exclusively on the return generated from advertising expenditure. Thus, it measures the efficiency of campaigns in relation to the budget applied to them, helping marketing analysts to invest in those that are truly more efficient for companies.
It’s no wonder that Return on Advertising Spend is addressed in various paid media channels such as Google Ads and Meta Ads, which contributes to comprehensive and effective reports.
How to calculate ROAS with Reportei
By generating your Ads reports with Reportei, it is possible to analyze the ROAS of campaigns broadcast both generally in the account and at the campaign, ad group, or keyword level.
This metric is already automatically calculated by our platform, and can even be compared with previous periods to see if there has been an improvement in results over time.
Along with this, you also have access to other comprehensive metrics of paid media channels, focusing on providing a complete view of your results and showing how each part influences the whole.
Finally, it’s worth highlighting that Reportei also features artificial intelligence features that help obtain automatic analyses of your reports and insights that can make all the difference when it comes to increasing the ROAS of your ads.
Moreover, Reportei AI comes with a paid traffic assistant that performs more precise analyses of your data, taking your objectives into account and providing strategy suggestions that can make your campaigns more assertive.
Take advantage of our 3-day free trial to explore all these features and perform more accurate analyses of ROAS and other metrics in your routine.
