In the community of PCC, two of the most widely used terms are ROAS and ROI. Both terms are interchangeably used within this community. Clarifying the difference between the two is extremely important, especially when the goals of a client match up with the basic concepts and ideas of ROAS vs ROIS.
ROI is short for “return on investment”. This is a method that determines the profitability that is relative to expenses made for programs. These are usually reported in the form of a percentage. ROAS is short for “return on ad spending”. This is focused on the efficacy that online campaigns for advertisements, and it can determine the revenue that was produced from a specific campaign by dividing revenue by expenses.
A huge difference between ROAS and ROI is in the ratio of spending versus earning. ROI has to do with the amount that you earn after you completely pay off your expenses. ROI is really to tell you if what you’re about to make is worth it or not because it can show you negative numbers. For instance, if you spent $1000 on an ad campaign and saw $1,500 revenue from it, you would subtract your expenses to determine the profit from the campaign. This would calculate to be a 50% profit, since you made $500 in total profits on a $1000 investment.
ROAS will only show you if you lost something from your investment. It will not show you the negative numbers that ROI will. For instance, if you make $1,500 on a $1,000 ad campaign, the ROAS would calculate as 150%. For every $1 spent, you get $1.50 in returns. This can be a good tool for comparing various campaigns to see which yields the highest returns, but it won’t show the overall profit after taking into consideration the costs like ROI and Margins will. Google Adwords generally calculates returns with ROAS.
It’s important to sort through the list of pros and cons of both ROI and ROAS before calculating the numbers. The primary factors in deciding between ROI and ROAS are the goals and resources that your company has for itself. It’s also important to consider that if you’re running multiple campaigns, they all could have contributed to a conversion at the end of the sales cycle, diluting each one’s end numbers.
If you use ROAS in your measurements of ad campaigns, you can see the spending in increments and the optimizations. Having many different marketing tactics will help bring in different results. Measuring your overall marketing strategy will benefit you the most when you are looking at the investment in its entirety.
A lot of marketing tactics take a little bit of time. For example, development of your audience on social media accounts, marketing your content, and ads that appeal to those looking at display grab the attention of clients long before anyone puts money towards that specific business.
A lot of marketers need to benefit from short-term effects from these campaigns–in which case, ROI can make this process extremely difficult. If there is a time frame that shows a continual increase, there will almost always be a cost that consistently comes up when the time frame increases as well. Using this process will only cause great losses to your company and its success because you will be waiting before actually making a profit from that which you put your money towards. ROI has the capability of slowing down the ability to see what the future holds for the business. It can also prevent a company from making a quick decision when it comes to marketing investments.