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ROI vs ROAS: What is The Better Metric?
Choosing the right metrics can be a challenge. We compare ROI vs ROAS to see which you should be using where.
Understanding the performance of your marketing is vital. And yet it’s something that marketers frequently struggle with.
In fact, 31% of marketers stated proving ROI was one of their biggest marketing challenges.
Where does this data gap come from? We think it comes from a lack of understanding of which metrics to track and how best to track them.
For this blog, we’re going to focus on ROI vs ROAS and why tracking these could help you make more out of your marketing efforts.
We’ll be talking about:
💡 TL;DR
– ROI is a performance measure used to evaluate the efficiency or profitability of an investment or compare the efficiency of a number of different investments. ROAS is a metric used to measure the revenue generated per pound spent on advertising.
– If you want an overall view of your marketing and the revenue you’re driving. ROI is the metric you need to measure. You should look at ROAS when you are interested in the performance of your advertising campaigns. It calculates the amount of money your business earns for each pound it spends on advertising
– If your website doesn’t support e-commerce, it can be difficult to get the revenue data needed to track ROI and ROAS. Tools like GA are subject to strict privacy rules, which means that the data is anonymous and can’t be used to directly link ad performance to revenue.
– Marketing attribution is the missing link in this equation, as it tracks visitors throughout their customer journey and identifies which ads influence revenue.
Before we dive into the finer details, let’s quickly define ROI and ROAS. We’ll start with ROI to kick things off.
ROI stands for return on investment. So, it’s a measurement of the return on an investment, usually used in marketing. A ratio between your net profit and investment, ROI is a great metric to understand how well your marketing is working to drive sales.
Calculating ROI is easy.
Related: How to measure marketing ROI
It’s just your profit divided by your spend multiplied by 100. Marketers are often asked about return on investment for channels and content, which can sometimes be tricky to prove. We found 54% of marketers are trying to track ROI.
ROAS on the other hand stands for return on ad spend. This metric is specific to paid channels and campaigns.
It simply determines the efficiency of your paid advertising by looking at how much revenue you generate compared to how much you spend. We found that 29% of marketers track ROAS.
You can calculate ROAS by dividing the revenue generated from your ads by the amount spent on them and multiplying this figure by 100.
The difference between ROI and ROAS is simple. Return on investment looks at your marketing as a whole while return on ad spend looks specifically at your paid campaigns.
Return on ad spend also only looks at direct spend on ads. It doesn’t include other costs like:
In short, ROAS is the best metric to look at when determining whether your ads are effective at generating clicks, leads and revenue. However, it only offers a snapshot of your profitability compared to ROI.
Let’s look at an example of ROI vs ROAS.
Imagine company A makes £80,000 in revenue in 6 months. They spent £25,000 on ads during that time.
Their other costs amount to £100,000. This is things like staffing costs and tools.
Let’s work out their ROI and ROAS using the formulas:
As you can see, there’s a huge difference between these two metrics. ROAS proves that the ads are working effectively but ROI reveals that on the whole, the business isn’t making money.
This is why you need to track both ROI and ROAS to fully understand the current state of your marketing.
When it comes to ROI and ROAS, it’s not a case of one or the other. It’s a case of using the right metric in the right place.
Using ROI is simple. It’s when you want an overall view of your marketing and the revenue you’re driving.
Related: ROI tools you need to try to measure your success
You can use ROI to get a holistic view of how your marketing is driving revenue. If you track metrics like traffic and leads alongside revenue, then you’ll get a full picture of where you’re losing people in the pipeline.
For example, you might find that one channel is generating low traffic, but high levels of leads and revenue. As such, it would make sense to drive more users through that channel perhaps with paid intervention.
ROI is a great metric to understand how profitable you are and whether you need to cut back or if you can afford to scale up your marketing budget.
Related: How to set your marketing budget
Return on ad spend can be used to get a holistic and granular view of your paid advertising. If you look at the ROAS of your paid as a whole, you’ll understand how much you’re spending compared to how much you’re generating.
But, if you break this down to a channel, or even campaign and ad level, you can start to understand what works best for you. This will provide you with quick wins to optimise your paid advertising for speedy growth.
It can help you make data-driven decisions on your paid ads to waste less budget and drive more results.
Related: Complete guide to refine your paid strategy
If you don’t have eCommerce capabilities on your website, then you might be wondering how to get revenue data into your analytics to better understand what’s working and what isn’t so you can measure ROI and ROAS.
There are a number of reasons why revenue doesn’t pull through to Google Analytics. You can read more on the limitations of GA here.
But we’re here to solve problems.
So, why doesn’t Google Analytics pull through revenue, ROI and ROAS automatically?
Well, first, you need to think about the customer journey.
A user will visit your website multiple times before they convert into a lead. While GA tracks these sessions, you can’t link them together as part of one customer journey.
Google Analytics has to work under strict privacy rules meaning the data is totally anonymised. It’s why it groups users into sessions, and why you can’t see individual user flows.
And the problems don’t end here.
When that visitor converts into a lead, you might find it tricky to connect the inputted form or inbound call back to a website session.
And that means, when leads close in your CRM, you don’t have the data you need to close the loop.
Marketing attribution is the missing link in this equation. It will track visitors every time they land on your site and build a customer journey of their touchpoints and interactions.
At the point of conversion, attribution tools can send all of this data over to your CRM.
That means, when that leads closes into a sale, you can attribute your closed revenue to the influencing channels, campaigns and ads.
Ruler Analytics is a marketing attribution tool that supports marketers to close this data gap to increase marketing effectiveness and reduce wasted budget.
Learn more about how attribution works or see the data in action by booking a demo. We’ll show you exactly how to connect the dots between your website, your CRM and your analytics.
