What matters more when it comes to digital media buys: measuring ROI (return on investment) or ROAS (return on ad spend)?
We tell clients that the smart play is to track both. Analyzing them together gives you a much clearer overall picture and can help inform your marketing strategies, media spend and more.
In general, ROI calculates profitability of your campaign while ROAS calculates effectiveness of advertising tactics like media. ROI measures the profit after all costs generated by ads relative to the initial cost of those ads. In other words, how the dollars you spent impacted the bottom line of the business. Keep in mind that ROI is completely dependent upon your organization’s goals, and it factors in overhead, margins and your industry sector.
ROAS measures revenue generated for every dollar spent on advertising, like a gauge of effectiveness of online advertising campaign tactics.
1. Checks and balances for spending:
If you base decisions solely on ROAS, you could be arbitrarily increasing advertising expenses across all channels without truly understanding the incremental impact on your bottom line. And conversely, if you base decisions solely on ROI, you don’t truly understand which of your channels that drive the bulk of your returns.
2. Multi-touch media and non-linear customer journey:
Marketers can still get funnel vision and stay too focused on tactics like paid search that drive immediate ROI at the bottom of the funnel. But audiences interact with media all throughout the funnel. ROAS does not measure the true impact of one channel on another, such as display’s impact on search, or offer an understanding of the incrementality of media dollar investment, which the ROI metric provides.
3. Business decisions and the role of marketing:
It’s critical to maintain focus on driving business performance, not just advertising performance. Marketers are stewards of clients’ media dollars, yes, but business performance KPIs must always be part of that discussion. The focus must remain true to both metrics or you lose out on valuable key insights to help make informed and strategic decisions. No one has an infinite media budget. That’s why we all have to make comprehensive decisions on the most effective and efficient spend every single day. We like to ask clients, “If you have $1 to spend to help your bottom line the most, where will you spend it?” Looking at marketing ROI and ROAS metrics together can help make that spend smarter and more strategic. If you’re still unsure about how to interpret these metrics to make informed decisions, drop us a line to discuss strategies that can help.