Spending on an advertising campaign is only part of the equation. Calculating profitability is another. The equation is often confusing, as you can get confused between ROI vs. ROMI and ROAS to understand which better demonstrates the effectiveness of your advertising campaign.
To avoid all these problems, we've put together this guide explaining what Return On Investment (ROI), Return On Marketing Investment (ROMI) and Return On Advertising Spend (ROAS) are and the effectiveness of each.
You will learn the following:
- What is the difference between ROI, ROMI and ROAS?
- How to calculate each of these metrics?
- How to choose between ROI, ROMI and ROAS when measuring the success of your advertising campaigns?
What is the difference between ROI, ROMI and ROAS?
When looking at ROI vs ROMI, there is little difference between the two. In fact, when marketers say ROI, they usually mean ROMI.
The main difference is in the terminology.
Where ROI or return on investment is a general term, ROMI or return on marketing investment is specific to marketing. Both show the profitability or waste of an amount of money you invest in your advertising campaign.
One more thing: you can take a two-way approach to calculating return on marketing investment (ROMI).
- ROMI without considering marketing expenses
In this case, you do not consider marketing expenses. Use the following formula to get this ROMI:
Marketing revenue/marketing expenses * 100
- ROMI without considering the cost of goods
In this case, you focus on the revenue generated, not the profit generated. Calculate it using the following formula:
Marketing revenue – marketing expenses / marketing expenses * 100
Keep in mind that the ROI of your marketing investment is wasted if the value is less than 100%. More than 100% and you are in profit.
As for ROAS or return on advertising spend, it is the return on advertising spend. It is very similar to ROMI when calculated without deducting advertising expenses and cost of goods.
How to calculate ROMI, ROAS and ROI?
Now we will show the formulas to calculate each of these metrics:
To calculate ROI:
Take the sales growth from the ad campaign and subtract it from the marketing costs. Then divide by the marketing cost.
Sales growth – Cost of marketing/Cost of marketing
To calculate ROAS:
Take the total conversion value and divide it by your advertising costs.
Total conversion value/advertising costs
To calculate ROMI:
Take marketing revenue and subtract product cost and marketing expenses. Then divide the total with marketing expenses. Finally, multiply by 100 to get a percentage value.
In few words:
Marketing revenue – cost of products – marketing expenses/marketing expenses * 100
Related:An easy way to measure content marketing ROI
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How to choose between ROI, ROMI and ROAS when measuring the success of your advertising campaigns?
To overcome the confusion that arises when analyzing ROI vs. ROMI vs. ROAS, we asked over 35 experts which metric they found useful.
The results? Surprising really, as there is strong competition between the three with ROI leading only slightly and ROMI and ROAS in an even position.
See for yourself:
Let's now share the reasoning that contributors shared in favor of each of these metrics.
- In favor of return on investment
- A favor do ROAS
- Please ROMI
In favor of ROI to measure the effectiveness of advertising campaigns
"ROI is the best way to measure the effectiveness of your advertising campaigns," says Bruce Hogan ofsoftware specialist. Why? “Because it gives you an accurate picture of the money you invested and the money the investment returned. It provides real insight into profitability,” according to Hogan.
by Michael SenaSenaceahe also views ROI "as the most comprehensive measure of an advertising campaign's effectiveness."
Sena's reasoning? “Because it allows for greater flexibility for assumptions. The company using it can decide what it considers an investment and how it calculates the dollar value of the return.”
Sena also shows a comparison between ROI x ROMI and ROI x ROAS, noting that “the ROMI in comparison relates additional profit margins to the cost of marketing, which makes it a skewed metric for companies with margins that are highly dependent on sales volumes or seasonality. .
ROAS, on the other hand, does not always facilitate comparisons between advertising campaigns. For example, ROAS would not capture the full cost of a retargeting campaign, because the measure does not include the cost of, for example, email acquisition.
“However, it's good to use all three (ROI, ROMI and ROAS) if the available data allows for an easy calculation. Together, they allow us to build a more comprehensive case and make more informed decisions”, summarizes Sena.
click throughLachlan Kirkwood believes that ROI is a good measure of the effectiveness of your advertising campaign as it takes into account all expenses. Kirkwood writes: “Unlike ROMI or ROAS, ROI must include ALL costs associated with your campaign.
These costs will take into account the actual ad spend as well as the time costs to create ad creative, set up the campaign and monitor its performance. Once you factor in all of these costs, you'll get a true representation of your net return on investment."
Chris Davis fromrevcartomakes another strong point in favor of using ROI: "It can be easy to see ROAS as it's literally how much money you're making strictly from ad spend, but that's limiting and not 100% accurate."
“Ads are very complicated and involve a lot more than just ad spend,” continues Davis. “There can be hours of work thrown in for creative production, targeting, and writing to be able to run a single campaign. When you factor all of that in (plus ad spend), you get a fuller picture of how much you're actually getting back for your spend.”
Furthermore, "measuring ad effectiveness should be done across the entire customer journey," says Laura Caveney ofrule analysis. “While advertising campaigns, especially remarketing advertising, are great for getting users to buy, this is not universally true.
Some customers may need dozens or even hundreds of touchpoints to convert to a sale. Having a view of how content and ads work together to drive a lead to a sale is critical to understanding the overall effectiveness of your advertising campaigns.”
Caveney continues, “As such, ROI or return on investment is the best way to measure your success. With marketing attribution tools (like Ruler Analytics), you can track every lead and all of their touchpoints. This means you'll get a complete picture of how your marketing (and specifically your advertising) is influencing your prospects. And even better, you can ensure that revenue is attributed to each relevant channel or campaign to properly attribute value to your marketing.”
Related:The 13 Most Important Facebook Ad Metrics for Measuring ROI
Marketers in favor of ROAS for advertising campaign effectiveness
To begin with, Jonathan Aufray ofdigital growth hackersspeaks in favor of ROAS. “ROI is always the most important metric for any business. If you have a positive ROI, you have a successful business. However, for your advertising campaigns, I think you should focus on ROAS (Return On Ad Spend) instead of ROI.
In fact, you want to track what your specific campaigns are generating in terms of CPA (cost per acquisition) and sales without taking into account metrics like wages or overhead (at least initially).”
de SurveyMonkeyMike Tatum also insists: “The best and most reliable way to measure the effectiveness of your campaigns isROSA. At a basic level, you always want to know how much revenue you're making for every dollar you pay on platforms like Google and Facebook. While ROI and ROMI are also metrics you need to track, they're not metrics you can really optimize on the platform side."
john ross deUSMLE Exam Preparation Perspectivesagrees with these people, saying, "While ROI and ROMI are useful metrics and can help inform overall marketing direction and strategy, nothing provides specific data like ROAS."
“This data point allows for close and detailed analysis of the dollar-for-dollar success of a given advertising campaign,” says Ross. “For example, we recently ran an advertising campaign around our USMLE prep course, and the follow-up analysis was primarily based on campaign ROAS.
The ROI and ROMI metrics simply didn't give us the detail we needed to analyze this campaign against other campaigns we've analyzed in other test prep courses we've reviewed. This helped shape our future ad spend budget and where those dollars should flow.”
But a word of cautionBroca'sSid Bharath shares, “You don't want to measure [ROAS] on each individual ad. This should be a metric that measures effectiveness holistically. So if you're creating ad campaigns that target different parts of the funnel, which you should, you need to measure the overall ROAS to determine if the strategy is working."
Bernadette Dioszegi deBannersnackadds, “But when you want to measure the effectiveness of your advertising campaigns, the key performance metric should be ROAS. The higher your ROAS, the better.
It's easy to calculate: total conversion value (the amount of revenue you get from a given conversion) divided by your advertising costs. Therefore, it is essential to add conversion values to your conversion actions.
For e-commerce businesses, it's best to set up dynamic conversion values. If you want to calculate ROAS for your Google Ads campaign, you can do so at the account, campaign or ad group level to get an overview and analyze the profitability of your ad campaigns.
Don't forget to also consider post-conversion metrics, such as the conversion rate of a lead to a customer by the sales team, as well as the lifetime value of a customer. Once you've assigned conversion values, you can start optimizing your ad accounts. ROAS statistics will help you make decisions about future budgets and advertising strategies.”
ROMI to measure the effectiveness of advertising campaigns
Several of our employees also spoke out in favor of ROMI.spreadsheetKasper Langmann, for example, says: “When choosing between ROMI and ROAS, opting for ROMI is a better option as it includes the full costs of everything involved. Unlike ROAS, ROMI provides a better understanding of when the investment is paying off and, if so, to what extent.”
Langmann advises: “ROMI (Return on Marketing Investment) indicates the return on marketing investment. Demonstrates the profitability or waste of a given amount of money invested in marketing campaigns.
Comparing ROI vs ROMI, Ostap Bosak deGarden of the Marquiscomments: “ROI is a very broad indicator that can be applied to any investment. Basically, it will show you how much profit your spend is generating, but that would include marketing spend, inventory, overhead, etc., a broad metric that can be applied to the ad.”
Bosak continues, “ROAS [on the other hand] is a very superficial metric that might look great on paper but cost a lot of money. It only shows you how much revenue your advertising dollars bring in. But it doesn't take anything else into account, and there's a long way to go between revenue and actual profit."
Therefore, “if we seek to measure the impact of an advertising campaign, the best option is ROMI”, according to Bosak. “[It] shows you how much profit your marketing investment is generating.
haute couture sweetsEric Jones is of the same opinion: "ROAS gives an exaggerated picture of your returns that can mislead you over time without providing a reality check." However, “Romi takes everything into account to give it a better image and measure the effectiveness of its marketing campaigns”. That's why Jones thinks: “ROMI (Return On Marketing Investment) is the best way to measure the effectiveness of your advertising campaigns.
Measurement is all about carefully analyzing the data, and ROMI can give you a better understanding of when investments are paying off, and if so, to what extent. That's why we prefer ROMI over anything else. It is one of the most important metrics.”
Alejandro Rioja ofso influentialHe also notes: “Because ROAS does not take into account the cost of your services or products, it cannot fully reflect the performance of your ad channel."
"ROAS only provides partial data that really doesn't reflect reality... [since] it doesn't cover the cost of products and doesn't subtract your marketing expenses," adds Francois Mommens oflinks.
International ConsultingYoann Bierling prefers ROMI to measure the effectiveness of his advertising campaign for the same reason. Says Bierling, "I tend to use ROMI to measure the success of my campaigns because ROMI takes into account ad spend as well as correlated spend, giving you a real sense of what marketing has actually done in net profit value. and can be compared with several heterogeneous metrics, while ROAS only allows us to know the performance of a campaign in relation to its own variables and can only be compared with other similar ones.”
Alex Willen deCooper's Treatshe also relies on ROMI. “The objective of marketing is to generate a positive return, and ROMI describes the return you are getting. If you have goals that aren't immediately related to profit (e.g., increasing brand awareness around something new you launched), ROMI is less relevant, but for the vast majority of my marketing, it's the right metric to use. be used. what to focus on”
In short,360 growthDescribes Sasha Matviienko: "The main benefit of ROMI: It represents profit, not just revenue."
To explain further, he shares, “For example, if you spent $10,000 on Google Ads and made $15,000 in profit, you would have a ROMI of 0.5. This means that for every dollar you spend, you get that dollar back, plus 50 cents in real profit, after all expenses.
The main benefit of ROMI is that you can account for all the expenses you've had, from coupons to variable costs like production costs, shipping, etc., and go as deep as you need to. This has proven to be useful for business owners and managers when evaluating potential investment opportunities.
However, it is difficult for field campaign strategists to use. That's why ROAS is widely used by campaign strategists. While it doesn't provide a detailed view of profit, the trick is to know your profit margins and what ROAS you need to break even."
Alternative: look at the CRO (conversion rate)
National PositionsMatt Erickson has another suggestion entirely. Erickson advises: “The best way to measure the effectiveness of your campaigns is to measure conversion benchmarks (CROs) for each part of your campaign.
Why CR? Because you don't just want to know what your return is, you also want to know WHY a campaign is winning so you can replicate that success elsewhere. Why does one ad, landing page or lead source convert better than others? Is Your Social Media Conversion ROI Better Than Google Ads?
Approaching any campaign from that conversion measurement mindset not only gives you all the ROI and ROAS data you want, it also gives you the data you need to improve performance and reallocate your marketing spend to improve overall profitability.”
After reading the insights shared by our experts, I'm sure you now have an idea of which metric you'd like to use to measure the effectiveness of your advertising campaign.
Finally, remember that all metrics (ROI, ROMI and ROAS) come with their advantages and disadvantages, so use the one that fits your needs because “at the end of the day it depends on the objective of the campaign”, in the words of Paulo . from franklinside gains.
How do you evaluate the effectiveness of an advertising campaign? ›
- Set a Specific Goal. Setting a clear goal for your advertising campaign is key to measuring its success. ...
- Analyze Site Traffic. ...
- Review Lead Quality. ...
- Analyze Key Metrics Before and After. ...
- Survey Testing. ...
- Learn More About Our Tools.
ROI refers to more global and general metrics. It takes into account the return on investment after calculating all investments made (from the cost of producing to advertising). ROMI shows the effectiveness of marketing investments. ROAS is responsible for the return on investment of individual advertising campaigns.How might you assess the ad campaigns ROMI? ›
To calculate the ROMI, deduct your marketing expenses from the income generated from your campaigns, then divide the number by your marketing expenses and multiply the result by 100%. Take all your marketing expenses into account, or you'll get an unreliable result.How do you decide when to measure ROI vs ROAS? ›
How is each metric used? ROAS and ROI are used to tell different parts of the marketing effectiveness story. ROI helps us understand whether the overall strategy is working and whether the campaign is worth the investment. In contrast, ROAS focuses more narrowly on the effectiveness of the ad campaign in isolation.What are examples of advertising effectiveness? ›
Advertising effectiveness is the extent to which an advertisement can achieve its objectives and deliver a return on investment. For example, if an ad increases brand awareness, the extent to which it increases consumer knowledge of and interest in the product measures its effectiveness.What KPIs do you use to measure the effectiveness of the campaigns? ›
- Return on investment (ROI) ...
- Cost per win. ...
- Cost per lead. ...
- Cost per conversion. ...
- Customer lifetime value. ...
- Cost per acquisition. ...
- Conversion rate. ...
- Website traffic.
Firstly, ROI measures the total return of overall investment, whereas ROAS only calculates your return for a specific ad campaign. Essentially, ROI is a bigger picture metric, while ROAS is a metric for measuring the success of a specific ad campaign. Secondly, ROAS looks at revenue, while ROI considers profit.What is considered a good ROMI? ›
What is considered a good ROMI? In general terms, ROMI should exceed the 100% level. If it does, it means that the marketing strategy is profitable, every dollar spent returns and brings income. Though, in some channels like context ads, the 20% ROMI is considered good enough.What is a good ROMI ratio? ›
For this use of ROMI, practitioners have identified standards for a good ratio (5:1), an excellent ratio (10:1), and a poor ratio (2:1). Because the metric is comparing total revenue–not profit–the ratio must be high enough to account for COGS and typical margin ranges.How do you measure ROMI? ›
ROMI (Return On Marketing Investment)
As a percentage ratio it demonstrates profitability or waste of a concrete sum of invested money. It is calculated with the following formula: ROMI = ((income from marketing – cost of goods – marketing expenditures) / marketing expenditures) * 100.
What is the difference between ROI and ROAS for marketing? ›
ROI provides you with insight into the overall profitability of your advertising campaign, while ROAS can be used to identify specific strategies that can help you improve your online marketing efforts and generate clicks and revenue.How do you measure ROI in a campaign? ›
You take the sales growth from that business or product line, subtract the marketing costs, and then divide by the marketing cost. So, if sales grew by $1,000 and the marketing campaign cost $100, then the simple ROI is 900%. (($1000-$100) / $100) = 900%.How do you know if ROI is good? ›
According to conventional wisdom, an annual ROI of approximately 7% or greater is considered a good ROI for an investment in stocks. This is also about the average annual return of the S&P 500, accounting for inflation.What makes a successful effective advertising campaign? ›
A good advertisement will: Grab the attention of viewers. Encourage them to take action. Outline the benefit of doing so.