ROAS vs ROI: Do You Need Both to Evaluate Your Ad Campaigns?
Ad campaigns need to have results. Otherwise, they’re just opportunities for marketers to congratulate each other on their creativity. The history of advertising has seen some truly groundbreaking coups of the imagination, from incredible landing pages to tremendous tv ads.
However, they will only have been judged a success if they gave a measurable return. Usually, this will mean a discernible change in consumer behavior.
This is where the measures of ROI (Return On Investment) and ROAS (Return On Ad Spend) come in. They sound like they’re pretty much the same thing. However, there are key differences to consider before deciding on whether to use one or the other, or both?
Return on investment
Advantages of ROI
- Good for getting a bigger picture of the overall return on spend
- Gives a meaningful idea of where the company is at, performance-wise
Disadvantages of ROI
- Can be time-consuming to identify and work out all the relevant cost figures that need to be included.
Return on ad spend
The other commonly used metric in this area is ROAS. This is a means of discovering the effectiveness of expenditure, using the following formula:
ROAS = (Revenue/Cost) x 100
So if an ad campaign cost $50,000 and the revenue yielded was $150,000, the ROAS figure would be 300%. This means that for every $1 you spent, you got $3 back.
This figure takes as its exclusive focus the cost of the actual ad and the income generated from it. It doesn’t include associated spend on related fields.
Advantages of ROAS
- Gives an idea of how a specific ad performed
- Gives data on how channels are delivering
- Is relatively easy and quick to perform
Disadvantages of ROAS
- There’s just one big one. It doesn’t give the whole picture.
The difference between ROI and ROAS
The two can be looked at like this. ROI is a much broader tool, taking into account a raft of associated expenditures, which it factors into every endeavor to give as accurate a profit picture as possible. ROAS is a much more tightly focused approach, which is concerned just with the performance of a specific ad campaign.
They both have their strengths, depending on what information you want. And, as we’ll see, the differences in qualities between the two tools make them great for use in tandem.
How do you work out results?
Of course, one of the biggest challenges is deciding exactly how much of a company’s profits that period was down to the ad campaign. This is a problem common to both ROI and ROAS.
Sometimes it’s easy – it can be based on something distinctly to do with the campaign, like tracking the use of a code that’s promoted in the ad. Sometimes, you’ll need to use techniques such as surveys and focus groups; to track improvements in brand awareness, for example.
Once you have an idea of how much brand exposure you’ve achieved in your ad campaign, you need to apply a monetary value to that exposure. This is in order to get a meaningful ROI or ROAS figure.
Other metrics that can be used to analyze an ad campaign include number of clicks, social media shares, new customers, conversions, and leads generated. As well as the impact it may have on average order value, time spent on site, and even the nature of the comments the company is receiving.
All of these KPIs will need to have a monetary figure placed on them so that your ROI or ROAS makes sense. How you go about this will vary from business to business: a positive comment will mean more to one company than another, for instance.
ROI vs ROAS? Either or both?
So, you can see that ROI and ROAS are techniques that give very different results so are commonly used by different types of analysts. If you’re just wanting to see how well an ad channel works when rated against other channels, use ROAS. If, on the other hand, you want a good picture of how financially healthy the whole advertising strategy is, use ROI.
But for those who want both the macro and the micro levels of information, use both. You’ll get a far more comprehensive understanding of ad campaigns if you do. So, in the case of ROI vs ROAS, it’s both, not either.