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ROI and ROAS: Understand The Difference And Importance Of Each

Here we are with two acronyms referring to the world of Digital Marketing, ROI and ROAS .

Both Return on Investment (ROI) and Return on Advertising Spend (ROAS) are essential metrics for your business, as both will compare your investment with the profit you earn.

Follow this article to know their definitions, how to calculate, their differences and much more!

What is ROAS?

The Return on Advertising Spend or, when translated, Return on Advertising Spend refers to the costs and revenue obtained from advertising campaigns.

With this metric you will be able to follow the strategies and channels that are bringing results to your business, which ones need changes or should be discarded.

You can, for example, measure the ROAS of the following channels:

  • Google Ads ;
  • LinkedIn Ads;
  • Facebook Ads; and
  • Instagram Ads.

ROAS can also be calculated in relation to more traditional media such as radio and TV, but here we will focus on digital channels.

What is the Role of ROAS in Digital Marketing?

As we briefly explained above, ROAS will show you the metric related to your advertisements, that is, when calculating the return obtained by the costs, you will know if a campaign is profitable or not.

In this way, you will be able to make some decisions regarding your digital marketing planning , such as: continuing the way it is, making changes or having to start over from scratch.

With that, we can say that the role of ROAS within digital marketing is to enable the progress of your planning , after all, without metrics there are no answers and without answers there is no way to develop your business.

How to Calculate ROAS?

The ROAS calculation is very simple, just put the values ​​in the following formula:

Image description

ROAS = (Return Achieved from Ads / Cost of Ads) X 100

Example of ROAS in practice

To make your understanding even easier, we separate a hypothetical example here, let's go to it!

Assuming that your company invested BRL 2,000.00 in ads for Facebook Ads per month and generated BRL 6,000.00 in sales , your ROAS will be BRL 3.00 , which means that for every BRL 1.00 invested , you had a return of R$ 3.00 .

To find the percentage, just multiply and you will get a result of 300%.

When we put it in the formula it will look like this:

ROAS = (R$ 6,000.00 / R$ 2,000.00) X 100

ROAS = BRL 3.00 X 100

ROAS = 300%

What is ROI?

Moving on to our second metric in the text, the Return on Investment , or Return on Investment, is the metric that indicates the return on the cost of a specific stock of your company .

ROI shows the most general results , as it can be applied in different areas or projects, that is, it is the answer whether or not your company is profiting from each investment made.

What is the Role of ROI in Digital Marketing?

In the same way that ROAS will be responsible for future decisions regarding the planning of paid ads, ROI is the one that will make you better understand the profit sources of your entire business .

With ROI you will be able to track the result of channels, such as:

  • blog;
  • IF THE;
  • E-mail marketing;
  • Content Marketing;
  • New product launches or features;
  • Sales team training; and
  • Google Ads campaigns and social networks.

How to Calculate ROI?

The calculation is the same as for ROAS, but instead of considering the costs and revenue of a single marketing channel or campaign, the values ​​are expanded to the entire operation being analyzed.

So, to calculate ROI you just need to put the values ​​in the formula:

Image description

ROI = (revenue - cost*) / cost X 100
*remembering that revenue – cost is profit .

Example of ROI in practice

Let's take a hypothetical example to make it easier to understand.

Assume that your company obtained R$25,000.00 in sales at an operating cost of R$5,000.00 , your profit will be R$20,000.00 .

When dividing the profit by the cost, we will have an ROI of R$ 4.00 , when we multiply by 100, we will have the percentage result of 400% return.

When you put it in the formula it will look like this:

ROI = (BRL 25,000.00 - BRL 5,000.00) / BRL 5,000.00 X 100

ROI = BRL 20,000.00 / BRL 5,000.00 X 100

ROI = BRL 4.00 X 100

ROI = 400%

What is the Difference between ROI and ROAS?

The first difference between ROI and ROAS is the magnitude of what they measure, while ROAS measures specific paid media results, ROI can be much broader .

That is, ROAS indicates the effectiveness of paid ads , while ROI measures the result of the entire strategy involved , whether the investment in a single project or not.

Advantages of Working with ROI

To further reinforce the importance of ROI in your company, here are some points of advantages when working with this metric.

Check out:

  • Elimination of Unnecessary Expenses – by knowing how your return is being, you will be able to better control your company's expenses, investing only in what is necessary.
  • Increase in Profits – if you eliminate unnecessary expenses, consequently your profit will increase, after all, all your focus will be on projects that will give a better return.
  • Culture Strengthening – when you know how to analyze your ROI, your focus on your business results increases, consequently, your employees are engaged to achieve them, in addition to taking advantage of the analysis of already established metrics.

Understand the Advantages of Working with ROAS

Because it is a metric focused on specific campaigns, ROAS allows you to do a much more in-depth and results-oriented marketing plan , always aiming for the highest possible return.

ROAS lets you understand which campaigns are working and which ones need improvement.

How to Improve ROAS Results?

Here are some tips on what to do for your ROAS to have better results.

Check them out and put them into practice!

Optimize Your Ads for Mobile

The number of people making purchases by cell phone is increasing more and more, and mobile is the main way Brazilians have to connect to the internet.

So do n't leave your ads out of this tool, optimize all of them always thinking about the specific characteristics of this device .

Take Tests

It is only through testing that you will discover the best way to speak to your audience , which attracts the most attention and gives the most results.

So don't skimp on A/B testing and test different creatives and approaches in your ads.

Segment

By targeting your ads, the chances of reaching a more qualified audience become higher.

That way, your ROAS will have a much better result, since you knew how to make the most of your ad investments.

Benchmarking

Keeping up with your competitors is an essential tactic for your business, so you can do things differently, produce better ads, and gain even more authority .

Know your Persona

If you know your persona well, know what their needs are, possible questions, channels that are active and what type of communication they prefer, your ads will become even more personalized , making your ROAS improve.

What is the Minimum ROAS?

Both Facebook Ads and Google Ads set a minimum ROAS, according to the budget allocated to a specific campaign.

However, Facebook also indicates that your company can start with an average ROAS, that is, establish that your ROAS is 100% , in this way, for every dollar invested your company will have the same return.

From there, the platform itself will work with this goal, making the return positive.

However, for you to have an exact number of your minimum ROAS for each campaign, just use the following formula:

Minimum ROAS = 1 / Operating Margin = 1 / (revenue - costs) / revenue = Revenue / Revenue - Costs

Why Work with ROAS Goals Instead of CPA?

The Cost per Acquisition (CPA) only indicates the cost of your company's conversions, ignoring the average ticket of your business , a condition that can end up penalizing your results.

ROAS is mainly indicated for e-commerce and average ticket variations.

Check below the ROAS goals!

ROAS Goal for Beginners

If you follow the formula below your ROAS will have goal 3, see:

ROAS Goal = 1 / my business margin

Target ROAS for Intermediaries

Upon reaching the intermediate level, your margin may change according to the ad created, see:

Ad A = Margin of 33% = ROAS Target of 3;
Ad B = 25% Margin = Target ROAS of 4; and
Ad C = 16% Margin = Target ROAS of 6.25.

ROAS target for Advanced

In the ROAS goal for advanced, it should be borne in mind that the higher the ROAS, the better , so it is necessary to be careful when calculating it so that there are no errors and, consequently, losses for your business.

Now that you know what ROI and ROAS are, their differences and all the specifications, start putting these metrics into practice in your business.

For more articles like this, keep visiting the Leadster blog!

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