In the world of marketing, everything is measured. Among the different measurement tools or methods, there are two
mechanisms to know if our strategies have been profitable or not: ROI and ROAS .
If you don’t know what these acronyms mean, but want to learn how they can help you understand and optimize your digital marketing campaigns, keep reading this article! We’ll tell you how to calculate and apply them to your campaigns effectively to measure your marketing efforts.
What is ROI and Roas in marketing?
Both abbreviations are very common in digital marketing language.
campaigns to evaluate the effectiveness and profitability of an advertising investment.
Although they are related to performance measurement, each focuses on slightly different aspects, providing different
information to marketing teams to make decisions and digital marketing strategy direct advertising campaigns.
Below we explain what each one consists of:
ROI: Return on Investment
ROI (Return on Investment) is a metric that evaluates the georgia phone number list overall profitability of an investment. It measures the economic gains compared to the cost of the product and the investment made to put it on the market .
How to measure ROI in digital marketing?
This is an indicator that reflects the profitability of the investment by means of a percentage. It is calculated using this formula:
ROI = [(Income – Costs) / Costs] x 100
Let’s graph with an example:
In a hypothetical case, producing a product costs $50,000 pesos, increase your engagement with a digital content provider but in the online store it is sold for $100,000 pesos.
To calculate ROI, you must subtract production costs ($300,000 pesos) and investment in Google Ads ($100,000 pesos) from income ($600,000 pesos); divide it between Google Ads expenses and production cost ($300,000 production + $100,000 Ads) and multiply by 100.
The operation would look like this:
ROI = [600,000 – (300,000 + 100,000) / (300,000 + 100,000)] x 100
(600,000 – 400,000 / 400,000) x 100
(200,000 / 400,000) x 100
0.5 x 100
ROI = 50% (The return on investment percentage is 50%)
This means that the return on investment reached 50%. You should consider that the result can be positive (as in the example) or negative, indicating that the business was not profitable. In the latter case, this evaluation will help you redirect your marketing strategy to obtain better results.
ROAS (Return On Advertising Spend) refers to the percentage of revenue obtained based on the investment made in the digital marketing campaign.
How is ROAS calculated?
This indicator measures the amount of pesos obtained for each peso invested in a campaign. Its formula is:
ROAS = (Revenue / Costs) x 100
Let’s go back to the previous example:
To calculate the ROAS, only the income from the digital whatsapp filter marketing strategy sale of the product ($600,000) and the money invested in Google Ads campaigns ($100,000) will be considered. The calculation would be as follows:
ROAS = (600,000 / 100,000) x 100
6 x 100
ROAS = 600% (The percentage of income obtained based on the amount invested through Ads was 600%).
This means that your company achieved 600% revenue from its advertising campaign investment. Just like the ROI, these results, whether positive or negative, will help you improve and strengthen your advertising campaign strategy.
What is the difference between ROI and ROAS?
Both metrics are useful for your marketing strategy and advertising campaigns. They are different metrics that provide different data, but are equally useful for any company with e-commerce platforms.
ROI will help you measure the profit achieved versus the investment, considering revenue and costs, while ROAS will give you the percentage of revenue for the amount spent on advertising within a platform.
The important thing is to understand when it is useful for your business objectives to use one or both metrics. You can use ROI to determine the profitability between the cost of the product or service and the marketing investment made, while ROAS will help you understand how your online advertising investment is generating profits.