Measuring Campaign Success with ROAS and ROI
When trying to determine the effectiveness of an advertising campaign, you can look at many different factors. Just as digital media has changed over the last few years, so has the way we determine a campaign’s measures of success. Two examples of how we evaluate campaigns are Return On Ad Spend (ROAS) and Return On Investment (ROI). While it’s important to understand the differences between ROAS and ROI, it’s equally important to know the value of each when optimizing both campaign performance and budget.
What are ROAS and ROI?
ROAS measures the revenue generated for monies spent on paid media advertising. ROI measures the return on your overall investment, not only media dollars spent, but time, labor and/or other resources spent on generating this return.
How are ROAS and ROI Calculated?
ROAS equals the total revenue divided by the total media spend. For example:
- Media Spend = $10,000
- Campaign Revenue Generated = $40,000
- ROAS = 4 ($40,000 / $10,000)
ROI equals the (total revenue – total expenses) divided by total expenses. For example:
- Media Spend = $10,000
- Cost of Goods = $5,000 (Added the cost of goods and media spend together as both are a campaign expense)
- Total Expenses = $15,000
- Campaign Revenue Generated: $40,000
- ROI = 1.7 ($40,000-$15,000) / $15,000
When Should You Use Each Measuring Indicator?
Knowing your campaign goal will help you to determine which factor to measure its success. Swapping out ROAS for ROI or ROI for ROAS could make a significant difference in the amount of money spent on your campaigns and the efficiency to reach those decisions.
- ROAS determines the overall impact a marketing campaign has on the efficiency and profitability of your marketing channels. One thing to note with ROAS is that it is possible for your ads to have a higher ROAS, but generate less profit.
- ROI is a business metric that measures the overall investment taking into consideration total expenses (dollars spent, time, labor and/or other resources spent on generating this return). ROI will help to calculate profitability of whether the campaign is worth the investment.
What is a Good ROAS and ROI?
Finding an ideal ROAS or ROI can differ depending on your industry, profit margins, operating costs, etc. However, a common goal for both ROAS and ROI among all industries is higher than 1 or minimum of 1, meaning for every $1 spent, $1 is earned.
Innovative Advertising can show you how to maximize the effectiveness of your advertising campaigns. Our digital media team is experienced and accomplished at determining which measure of success is ideal for your company.
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