Try out these returns calculators
ROAS - return on ad spend
ROI - Return on investment
What the Heck is ROI and why does it matter?
Why measure marketing ROI?
Let’s look at three benefits of calculating your marketing ROI.
1. Calculating marketing ROI helps you see what’s working
When you calculate your marketing ROI, you can see what digital marketing strategies work for your business. It’s difficult to know if these tactics are working if you don’t measure how they help your company.
If you calculate your ROI for your digital marketing strategies, you can discover what’s driving sales.
This information can help you revamp campaigns to drive better results. It may not be the tactic itself, for example, but the ad copy or targeting causing your low ROI. Calculating your ROI will allow you to see what works, so you can make changes to drive better results.
2. Calculating marketing ROI helps you determine where to invest your budget
When you calculate your marketing ROI, you learn what strategies work and which ones don’t. This information helps you decide where to invest your budget.
So, for example, you may find that your social media advertising campaign has a 2:1 ROI, while your PPC campaign drives an 8:1 ROI. As a result, you realize that your social media ads aren’t working well for your ad strategy.
You can go one of two ways with this information.
One, you can shift your ad budget from social media advertising to PPC advertising. This strategy is standard, as most businesses stick to tactics that drive a consistent and impressive return.
Two, you can put more funds into strategies that aren’t driving the best ROI. You may choose to invest more of your budget into these underperforming strategies to help you optimize your campaigns and improve them.
The second option typically happens when companies don’t set a realistic ad spend, which sets them up for failure from the beginning. By adjusting your ad spend, you may invest enough to drive better results.
Overall, knowing your ROI enables you to get a full scope of what’s working in your marketing strategy, so you can determine how to rework your budget and get the best possible return from it.
3. Calculating marketing ROI helps you see how you stack up to the competition
When you measure your marketing ROI, you can use that information to gauge how you stack up to competitors. This information helps you understand how you perform in your industry.
Many companies will have a public release of financial data if they are a publicly-traded company. While it doesn’t state their marketing ROI outright, you can use this data to estimate your competitor’s ROI.
When you know this information, you can compare your business to your competition. It can help you revamp your strategy to drive better results with your marketing channels.
What the Heck is ROAS and why do i care?
An Introduction to Return on Ad Spend
Before we get into the specific problems marketers (particularly those in B2B) run into when trying to measure ROAS, let’s take a look at some of the frequently asked questions relating to ROAS and the measurement process.
If you’re already familiar with the metric, feel free to skip forward to the next section.
What Is ROAS?
Let’s start off simple. ROAS is an acronym for return on ad spend. It’s used in marketing and advertising to understand how your paid-for adverts are driving sales for your business.
Put simply, ROAS is a calculation that divides the amount of revenue generated from ads by the amount spent on advertising.
The goal of measuring ROAS is to determine if the cost of advertising yields an acceptable amount of incoming business revenue.
Why Is ROAS Important?
Today’s marketing best practices are all about data. Metrics like increased traffic, followers, and visibility are no longer enough. Company leaders want to know exactly how much revenue marketing and advertising campaigns generate.
ROAS lets you produce reports showing exactly how much revenue your ad campaigns generate for the business. Additionally, it allows you to determine which ad campaigns are most and least successful—and if running ads is even worth the cost—which helps you continuously refine your spend to eventually generate the most revenue for the least costs.
ROAS vs. ROI?
On the surface, return on ad spend and return on investment (ROI) seem like identical metrics. Both measure the amount of revenue generated from a specific allocation of funds.
But what’s the difference?
Most ad campaigns are costs—not investments.
An investment is something that drives value long-term.
Advertising, on the other hand, typically intends to drive traffic and revenue temporarily. Of course, you could gain more social followers or newsletter subscribers from ads, but most of the time, the goal of an advertising campaign is to increase revenue while the ad is running.
You could, in fact, measure both the ROAS and ROI of your advertising campaigns.
In this scenario, ROAS would measure the direct revenue generated while the ad was running, while the ROI would measure how the ad campaign contributed to long-term revenue by increasing brand visibility or product/service awareness.