ROAS vs ROI: What’s the Difference and Why It Matters in Marketing

If you work in digital marketing or handle any online advertising campaigns for your business, you must have come upon two important metrics: ROI and ROAS. While ROI (Return on Investment) has been used for ages to measure all kinds of success in the world of business, the measurement of digital ad performance has lately seen the emergence of ROAS.

How are ROI and ROAS defined? More importantly, how do they differ when it comes to measuring the success of an advertising strategy? In this article we are going to understand the difference.

What is ROAS?

The term ROAS stands for Return on Ad Spend. It is a performance measurement for evaluating the effectiveness of a specific advertising campaign in terms of conversion into sales. To simply put it, ROAS indicates how much revenue a business earns against every pound (dollar) spent on advertising.

ROAS = Revenue from Ad Campaign / Cost of Ad Campaign

Why does it matter? 

If you are marketing multiple campaigns through multiple platforms and want quick and clear insights into which platform is giving the most return for what you invested, this metric will help you with that. ROAS, therefore, assists marketers to quickly take budget allocation decisions for best returns.

Why ROAS?

ROAS gives a quick snapshot of campaign performance. On any platform, Google, Meta, TikTok, etc., ROAS serves as a measure to identify which ads are making the most revenue considering their costs. This is a brilliant way of cutting down costs and rapidly scaling successful campaigns.

A more basic way to say the ROI formula is:

ROI = [(Current Value of Investment – Cost of Investment) / Cost of Investment] × 100

So the good thing about it is, unlike ROAS—which compares only ad spend against revenue—ROI takes into account all expected costs, like software, team salaries, or overhead. It really helps one see in the bigger view of whether the investment will benefit the business in the longer run. 

Why Does ROI Matter?

ROI tells you if your marketing campaigns truly bring wealth to the business. It is necessary for strategic planning, budgeting, and evaluating whether your investments add to your business goals or not.

ROAS vs. ROI: Real Differences

The key differences come down to what each metric measures:

• ROAS is concerned with revenue coming from an amount spent on ads.
• ROI concerning profit in consideration of all the different costs.
• ROAS looks only at direct ad spend.
• ROI includes all associated business expenses.

To really put it into perspective: Company A generates £100,000 revenue from an ad campaign while spending £25,000 on ads. However, the company also incurs another £80,000 in related costs (staff, software, and so on).

Using the formulas:

• ROAS = £100,000 / £25,000 = 400%
• ROI = (–£5,000 / £105,000) × 100 = –4.76%

And this is when the campaign looks like a winner with a 400% ROAS. But then the ROI shows that the company actually lost money—in spite of great ad performance.

Final Thoughts- Understanding both ROAS and ROI will enable you to make better choices about your digital marketing investments. ROAS guides you to tune ad performance in the short term, whereas ROI assures you of profiting from the long-term, sustaining strategy.

Don’t let dazzling ROAS numbers captivate your mind too much; make sure to analyze the whole picture. The campaign might bring huge revenue, but if the investment costs are too high, the campaign is definitely hurting the business. The focus should be on balancing both figures for your digital advertising to really work for you.