ROAS vs. ROI: Differences, Use Cases, and Examples
Published January 31, 2023.
Your organization must continuously monitor and evaluate its marketing and advertising efforts. Two key performance metrics that will help you with this are return on ad spend (ROAS) and return on investment (ROI).
While they seem similar, they're used in different contexts to give you a clear understanding of how you spend money and what your brand gets in return.
Let's break down the definitions of ROAS and ROI and look at examples to demonstrate how these metrics are applicable to advertising campaigns.
What Is ROAS?
Return on ad spend (ROAS) measures how effective your advertising budget is by calculating how much each dollar you've spent has given back in terms of revenue.
ROAS = Total Revenue from Campaign / Cost Spent on Campaign
If you want to see your ROAS as a percentage, just multiply the answer by 100.
» Find out what's a good ROAS per platform and industry
What Is ROI?
Return on investment (ROI) refers to how much you've earned from an investment after you've subtracted the expenses, so ROI is about profitability. In the context of advertising, ROI measures how profitable your ads are based on what it cost you to run them.
ROI = Net Profit / Net Spend x 100
» Discover how ROI between Google Ads vs Instagram Ads compares
5 Key Differences Between ROAS and ROI
1. Investment Type
You can use both metrics to analyze ad campaigns, but they can focus on different investment types.
ROAS
- Evaluates advertising and marketing investments.
ROI
- Evaluates all types of investments to determine if a particular initiative is worth it.
2. Reliability
Since ROAS considers marketing expenses only, you should compare ROAS and ROI to get insight into the overall efficacy and profitability of your marketing efforts.
ROAS
- Considers money spent on campaigns only.
ROI
- Considers other expenses related to your campaigns.
3. Profits
Each metric looks at profitability from another angle. ROAS is more focused on the specific campaign, while ROI looks at the bigger picture.
ROAS
- Compares how much you spent on a campaign with how much the campaign earned you.
ROI
- Considers the profit the campaign has generated and how much it contributed to your bottom line.
4. Results
ROAS
- Focuses on sales results
- Determines which advertising activities provide the most sales
ROI
- Focuses on profit results
- Determines which advertising methods contribute the most to your profits
5. Necessity
Both metrics are necessary when you analyze your business's performance, because it can give you insight from different perspectives.
ROAS
- Measures how effectively you use your marketing funds.
- Advertising spend brings in more customers and bolters your brand visibility.
ROI
- Measures how profitable and worthwhile your campaigns are.
Use Case 1: Positive ROAS and Positive ROI
Clothing Brand X has just started selling pet clothing as an expansion of its product offerings. Q1 of its sales amounted to $60,000 from its new line. The brand also invested $15,000 in advertising in addition to $20,000 spent on production.
To calculate ROAS:
ROAS = Total Revenue from Campaign / Cost Spent on Campaign x 100
$60,000 / $15,000 x 100
= 400%
To calculate ROI:
ROI = Net Profit / Net Spend x 100
$60,000 — ($15,000 + $20,000) / ($15,000 + $20,000) x 100
$25,000 / $35,000 x 100
= 71.42%
As you can see, both calculations yielded positive results. This means Clothing Brand X's campaign was successful and highly profitable.
Use Case 2: Positive ROAS and Negative ROI
Bob's Upholstery Services spends $5,000 each month on advertising efforts for its new service—car upholstery. The brand's sales amount to $10,000 as a result of the ad campaign, but expenses for these jobs run up to $20,000.
To calculate ROAS:
ROAS = Total Revenue from Campaign / Cost Spent on Campaign x 100
$10,000 / $5,000 x 100
= 200%
To calculate ROI:
ROI = Net Profit / Net Spend x 100
$10,000 — ($20,000 + $5,000) / ($20,000 + $5,000) x 100
- $15,000 / $25,000 x 100
= - 60%
While the new service resulted in an overall loss, its advertising campaign still yielded positive results. In this scenario, the business must streamline expenses or increase service fees to improve ROI.
» Follow these tips to increase your marketing ROI with dynamic pricing
Calculate Your ROAS and ROI With BeProfit
ROAS and ROI are crucial metrics that measure your business’s success in its marketing and overall operational efforts. While they provide different insights, both metrics help you to make informed decisions about your marketing strategies and other investments. A deep understanding of each will help to maximize your profits and minimize your losses, leading to long-term success and growth.
Doing these calculations and analyzes on your own may seem intimidating, but that's why you can rely on an app like BeProfit to simply it for you. Easily keep track of all your data from the user-friendly dashboard or export reports if you want to dig deeper.
» Book a demo to explore BeProfit's features for yourself
