ROAS VS ROI | What’s the Difference?

If you are advertising, then you must have learned about ROI and Roas in the communication with the agency. But you cannot understand the difference between the two very clearly. There are even some agents who start blackmailing you. You need to understand the difference between ROI and Roas in detail to independently determine the success or failure of the project.


ROAS VS ROI | Concept Comparison

Are ROI and Roas the same thing? No.

ROAS refers to Return on Advertising Spend, which is used to measure how much revenue one dollar can bring. The return on investment in advertising (ROAS) can help online companies evaluate which methods are effective and how to improve future advertising efforts.

In advertising and marketing, ROI represents the rate of return on investment. The main assessment is whether the money you earn exceeds the money invested? ROI is used in many industries, and the real estate industry is a typical case. The ROI of the advertising industry is simpler and more versatile than other industries. The purpose of capital expenditure is to get a return-whether it is new software features, new customers or new revenue. In marketing, we should always focus on our efforts to increase income levels.


ROAS VS ROI | Formula Comparison

Roas = Revenue From Ads / Amount Spent on Ads

ROI= ( Returned – Invested ) / Invested

Invested costs often include: product cost + advertising fees + taxes + freight + storage fees + labor fees + other expenses.

From the formula, the main differences between ROI and ROAS are as follows:

  • ROAS uses sales to calculate, not profit;
  • ROAS only considers direct advertising expenditures and does not consider other related expenses;
  • ROI profits usually include labor, logistics and other costs, not just product costs


ROAS VS ROI | Function Comparison

Which should we use for ROI or ROAS? In fact, these two indicators do not conflict. We compare them through cases:

Advertising situation 1:

  • $10,000 in income
  • $5,000 spent on advertising
  • The cost of products, labor, etc. is $3,000

We use ROI calculator and ROAS calculator to get the final result by inputting numbers.

From the results of the calculator, we can see that the ROI is 25%, which means that $10,000 can earn $2,500. ROAS is 200%, or 1:2. Let’s look at the second advertising case.

Advertising situation 2:

  • $10,000 in income
  • $5,000 spent on advertising
  • The cost of products, labor, etc. is $7,000

We still use the ROI and ROAS calculator to calculate the final result.

See it? In advertising situation 2, ROAS remains unchanged, but it will not be profitable. So when someone says “ROAS I can do 1: 2”, I actually don’t know whether he is making money or losing money. And if someone says that ROI is 1:4, then he has made a lot of money.


Summary

The difference between ROI and ROAS is reasonably analyzed above. But in the end, we have to consider how to maximize revenue. The market is that big, and the audience for a product is relatively fixed. Now you have to switch to other channels or methods to squeeze out more audiences, set up more sets of advertising combinations to find out what other situations have high ROAS, or change the material and slogan. Test patiently.

However, the above is just a numerical example. The reality is that instead of requiring higher ROAS, you can actually invest this budget in other channels, use the influence of celebrities to reach more people, use other platforms to promote, etc. .