Welcome back to our series on Return on Ad Spend! If you missed our other blog posts about ROAS, you can find them here.
Today’s blog will delve into the differences between two essential metrics – ROAS (Return on Ad Spend) and ROI (Return on Investment).
What is ROI?
ROI, which stands for “Return on Investment,” is an important metric that compares the amount of money you invested with the profit it generated.
In digital marketing, this can refer to the overall return on a marketing campaign, including the revenue generated and the cost of running the campaign.
For example, you spent £1,000 on a LinkedIn ad campaign that generated £2,000 in revenue. However, the cost of producing and running the ad campaign was an additional £500. In this case, your ROI would be:
ROI = (Revenue – Cost of Campaign) / Cost of Campaign
ROI = (£2,000 – £500) / £500
ROI = 3:1
This calculus means that for every Pound you invested in the campaign, you earned £3 in profit.
What is The Difference Between ROAS and ROI?
While ROAS and ROI are important metrics for digital marketers, they measure differently. ROAS helps you understand the effectiveness of your advertising campaigns, while ROI provides a more comprehensive view of the profitability of your marketing efforts.
If we simplify this comparison, ROI looks at the big-picture, whereas ROAS focuses on Ad revenue versus spend. It tells you how much income you generate for every Pound or Dollar you spend on advertising.
Conversely, ROI considers both the revenue generated and the cost of running the campaign. As a result, it will give you and your team a more comprehensive view of your investment’s profitability.
Why Both Metrics are Important
When you use ROAS and ROI in pair, you can benefit from the best of both worlds. This way, you can make more informed decisions about allocating your marketing budget.
For example, you may find that specific campaigns have a high ROAS but a low ROI, indicating that they generate revenue but not enough to justify the cost of running the campaign. Conversely, some campaigns have a low ROAS but a high ROI, indicating that while they aren’t generating much revenue, they are still profitable overall. By having all the facts, there are no surprise costs later down the line, denting your revenue, and you can allocate your resources to supercharge your success.
Understanding the difference between the two and how to use them together is crucial for optimizing your marketing efforts and maximizing your profitability.