ROI and ROAS are digital marketing metrics that allow you to measure a campaign. These metrics will let you know if your actions are succeeding or if, on the contrary, you need to make adjustments.
But don't worry if you don't know what these acronyms mean, here we explain each of them, how to measure them and why it is important to use them for your strategy. Don't miss this reading!
what is ROI?
ROI (Return on investment) is the economic value that you generate as a result of your marketing actions. It is a formula that helps you calculate the profitability of your campaigns, and it is used to know the results of an investment or investments made by your company. Tracking the ROI will allow you to know if the money you have invested in a marketing campaign has generated economic benefits or losses.
ROI takes into account all the investment you make and all the marketing resources, i.e. the costs of different web tools and platforms, design, IT, etc.
how is ROI calculated?
An important part of the Inbound marketing methodology is to measure the results of your strategies, because what you don't measure you can't improve.
Calculating the ROI is very useful to check the profitability of your actions, because it is the relationship between the investment and the benefits generated.
The ROI formula is as follows:
ROI = (Profit - Investment) / Investment x 100
ROI is presented as a percentage, so it is multiplied by 100.
Let's give you an example, imagine that you invest €800 to do a course, and you get €2,400 profit from it, then your ROI would be 200%, i.e. for every euro you have invested, you have obtained a return on investment of €2 profit.
It can happen that your ROI is negative, which a priori would mean that you would have to check that it does not work. But keep in mind that you can get a negative ROI because your goal was to achieve a lot of impact and generate traffic to your website, i.e. you have not generated economic gains, but you have achieved your goal. A campaign with negative ROI can be positive within certain contexts.
For future decision making it is important to calculate the ROI, to know if your investments will give you benefits or not. You will have more information to be able to evaluate if your strategies are profitable.
what is ROAS?
The ROAS (Return on Advertising Spend) or Return on Advertising Investment, is used to know the effectiveness of a campaign, that is, how much revenue has been generated for each investment you have made in a campaign or advertisement.
This metric is one of the basic metrics in digital marketing, because thanks to it you can measure whether your campaigns are working or not. Unlike ROI, this formula focuses on the cost of the ad and the amount of revenue you have generated, not on the profitability of the entire marketing investment.
It is important to understand this metric, because applying it correctly will help you know if you are doing a good job and will make it easier for you to define future campaigns.
how is ROAS calculated?
The ROAS, as we have told you in the previous section, measures the income generated by making an advertising investment. The formula to calculate the return on advertising investment is simple, because you only need two pieces of information, what you have earned and what you have invested in the campaign. The formula is as follows:
ROAS = (Revenue / Investment) x 100
Like ROI, it is multiplied by 100 to give the result as a percentage.
To make it clear, your company creates an ad campaign on Google Ads and invests 400€ for a month. Thanks to these ads you have earned 1200€, which means that your ROAS is 300%, which means that for every euro you have invested you have generated 3€.
ROAS is an essential metric to evaluate the performance of your advertising campaigns and to know if your ads are generating profits. This will help you to make better decisions as you will know where and how to invest your money to be more efficient.
how do you know if your campaign is successful?
Ideally, you should complement both metrics, as relying on the results of only one of them may not be enough and may lead you to make mistakes.
ROAS focuses on the revenue of a specific advertising campaign, while ROI is a metric dedicated to measuring the total revenue generated by marketing campaigns, but both are dedicated to measuring the performance of campaigns.
To know if your campaign is successful, in the case of ROAS is simple, if your percentage is positive and high, it means that your ad is working and generates more revenue than you invested.
In the case of ROI it is a bit more complicated. If the result is positive, your project is being profitable and therefore, your income exceeds the investment made. But if your result is negative it can have two meanings: that the strategies you are carrying out are not being profitable or that your profitability is long term. As we have told you in the ROI section, this can sometimes be negative but it does not translate into failure. For example, a high initial investment for your project to get a lot of visibility and traffic will result in a negative ROI, but the results and profitability will be long term.
In short, both metrics are important and you have to take them into account to understand the success of your campaigns. In the world of digital marketing a fundamental part is the analysis, so there are a lot of different KPIs that help you to know the status of your strategies.
now it's your turn! Calculate these two metrics in your business and observe the results obtained.
we hope you enjoyed reading this!
