It’s easy to feel lost in the world of digital marketing, isn’t it? So many metrics to track, so many analyses to make… But don’t worry, today I’m going to simplify two important concepts for you: ROAS and ROI.
But first, I want to touch upon something you shouldn’t forget.
The purpose of every advertising campaign is not and should not be just to make instant sales. Some campaigns may provide extra contributions such as increasing your brand awareness, attracting new customers, or satisfying your loyal customers. That’s why when you are analyzing your campaigns, it’s crucial to see the big picture and not just get caught up in the numbers. 😉
What is ROAS?
ROAS shows you what percentage of every penny you spend comes back to you as revenue.
In short, it can be kept in mind with the formula (Revenue / Cost).
You can use ROAS to compare the efficiency of your advertising campaigns.
Additional Information:
It stands for: Return on Ad Spend
Formula: ROAS = (Conversion Value / Advertising Cost) x 100
Example: Let’s say you spent $5,000 on advertising and generated $20,000 in revenue.
ROAS = (20,000 / 5,000) x 100 = 400%
400% ROAS means that $1 ad spend generates $4 turnover.
What is ROI?
ROI looks not only at revenue but also at profitability. In other words, it shows the percentage of profit remaining in your pocket after deducting your expenses. Considering ROI is essential for sustainability in the long run.
In short, it can be kept in mind with the formula (Profit / Cost).
Keep in mind that to calculate a more realistic ROI, you need to factor in other costs such as production costs, advertising, salaries, rent, software, and services.
Additional Information:
It stands for: Return on Investment
Formula: ((Gain from Investment – Investment Cost) / Investment Cost) x 100
Example: Let’s say your total investment (including advertising) to reach $20,000 revenue is $15,000.
ROI = ((20,000 – 15,000) / 15,000) x 100
ROI = (5,000 / 15,000) x 100 = 33.33%
This means you have made a 33% profit compared to your total expenses.
33% ROI means that with an investment of $1, $0.33 profit and $1.33 turnover is achieved.
Which one should we follow?
It is necessary to follow both. While ROAS is a great tool for measuring the short-term success of your campaign, ROI is essential for your long-term strategies.
No single metric is a magic bullet. For a successful marketing strategy, you need to use ROAS and ROI together to make data-driven decisions and continuously optimize.
I hope this article has cleared up some of the ROAS and ROI confusion in your mind. See you in the next post! 👋
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