ROI and ROAS: Understand the Difference and Why Each One Matters
Here we have two acronyms from the Digital Marketing world: ROI and ROAS.
Both Return on Investment (ROI) and Return on Advertising Spend (ROAS) are essential metrics for your business, as they compare your investment to the profit obtained.
Keep reading this article to understand their definitions, how to calculate them, their differences, and more!
What is ROAS?
Return on Advertising Spend refers to the costs and revenue generated from advertising campaigns.
With this metric, you can track which strategies and channels are bringing results to your business, which ones need adjustments, and which should be discarded.
You can, for example, measure ROAS on the following channels:
- Google Ads
- LinkedIn Ads
- Facebook Ads
- Instagram Ads
ROAS can also be calculated for traditional media like radio and TV, but here we’ll focus on digital channels.
The Role of ROAS in Digital Marketing
As we briefly mentioned earlier, ROAS is the metric related to your paid ads. By calculating the return generated by their cost, you’ll know whether a campaign is profitable or not.
This way, you can decide whether to continue as is, make changes, or start from scratch.
ROAS plays a key role in enabling digital marketing planning. After all, without metrics, there are no answers—and without answers, there’s no way to grow your business.
How to Calculate ROAS
The formula is straightforward:
ROAS = (Revenue from Ads / Ad Cost) x 100
ROAS Example
Let’s look at a practical example:
If your company invested R$ 2,000 in Facebook Ads and generated R$ 6,000 in sales, your ROAS would be R$ 3.00—meaning every R$ 1.00 returned R$ 3.00.
To get the percentage:
ROAS = (R$ 6,000 / R$ 2,000) x 100 = R$ 3.00 x 100 = 300%
What is ROI?
ROI, or Return on Investment, is a broader metric indicating the return on the cost of a specific action or initiative.
Unlike ROAS, ROI shows overall results, applying to multiple business areas or projects. It’s essentially the answer to whether your business is truly profiting from an investment.
The Role of ROI in Digital Marketing
While ROAS guides decisions regarding paid ad planning, ROI gives you a deeper understanding of where profit is coming from in your business.
You can use ROI to track the performance of:
- Blog
- SEO
- Email marketing
- Content marketing
- New product or feature launches
- Sales team training
- Google Ads and social media campaigns
How to Calculate ROI
The formula is the same, but instead of focusing on just one campaign, you expand the scope:
ROI = (Revenue – Cost) / Cost x 100
Remember: Revenue – Cost = Profit.
ROI Example
If your company had R$ 25,000 in sales and R$ 5,000 in operational costs, your profit would be R$ 20,000.
ROI = (25,000 – 5,000) / 5,000 x 100 = R$ 20,000 / R$ 5,000 x 100 = 400%
The Difference Between ROI and ROAS
The first difference is scope. ROAS focuses on specific paid media results. ROI, on the other hand, can measure broader investments.
So:
- ROAS evaluates the effectiveness of paid advertising
- ROI measures the total return of a marketing or business initiative
Advantages of Working with ROI
Here are some reasons to use ROI in your company:
- Eliminate Unnecessary Expenses: Track your returns and cut costs that aren’t driving profit.
- Increase Profitability: With reduced waste, you’ll focus resources on what really works.
- Strengthen Business Culture: Measuring ROI boosts result-oriented thinking and employee engagement.
Benefits of Using ROAS
As a more focused metric, ROAS lets you refine your paid media efforts and optimize for maximum return.
It also helps identify what’s working and what needs improvement—key for budget allocation.
How to Improve ROAS
A few proven tips to boost your ROAS:
- Optimize for Mobile: Most users access the internet via smartphones. Your ads must be mobile-friendly.
- Run A/B Tests: Test different creatives and approaches to find what resonates.
- Segment Your Audiences: Narrow targeting improves ad effectiveness and returns.
- Benchmark Competitors: Study your competition to outperform them.
- Know Your Persona: The more you understand your ideal customer, the better your messaging and targeting will be.
What’s the Minimum ROAS?
Platforms like Facebook Ads and Google Ads recommend starting with a minimum ROAS goal based on your budget.
Facebook often suggests starting with a 100% ROAS, meaning each dollar spent should return one dollar. From there, the platform works to optimize performance.
Use this formula to define your campaign’s minimum ROAS:
Minimum ROAS = Revenue / (Revenue – Costs)
Why Set ROAS Goals Instead of CPA?
CPA (Cost per Acquisition) only measures conversion costs, ignoring average ticket value. This can distort your results.
ROAS is better, especially for e-commerce, where ticket values vary.
ROAS Goals by Level
Beginner ROAS Goal:
ROAS Goal = 1 / business margin
Intermediate ROAS Goals:
- Ad A = 33% margin → ROAS Goal = 3
- Ad B = 25% margin → ROAS Goal = 4
- Ad C = 16% margin → ROAS Goal = 6.25
Advanced ROAS Goal
For advanced ROAS goals, keep in mind that the higher the ROAS, the better. That’s why it’s crucial to calculate it carefully to avoid any kind of mistake—and, as a result, losses for your business.
Now that you know what ROI and ROAS are, their differences, and all the specific details, it’s time to start applying these metrics in your business.
To learn more about paid media, check out our complete guide!
