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Data Snacks | Jul 23
Masooma Memon on December 18, 2020 (last modified on December 21, 2020) • 14 minute read
Spending on an ad campaign is just part of the equation. Calculating the return is another. The equation often gets confusing since you may get tangled between ROI vs ROMI and, ROAS for understanding which one best demonstrates your ad campaign’s effectiveness.
To save you from all this trouble, we’ve put together this guide that explains what return on investment (ROI), return on marketing investment (ROMI), and return on ad spend (ROAS) are and how effective each is.
You’ll learn the following:
When looking at ROI vs ROMI, there’s little difference between the two. In fact, when marketers say ROI, they are often referring to ROMI.
The chief difference lies in terminology.
Where ROI or return on investment is a general term, ROMI or return on marketing investment is marketing specific. Both show the profitability or waste of a sum of money that you put into your ad campaign.
One more thing: you can take a two-way approach to calculating the return of marketing investment (ROMI).
In this case, you don’t consider the marketing expense. Use the following formula to get this ROMI:
Income from marketing/ marketing expenditure * 100
In this case, you focus on generated income, not generated profit. Calculate it using the following formula:
Income from marketing – marketing expenditure/marketing expenditure * 100
Keep in mind that a return on marketing investment cost goes to waste if the value is less than 100%. More than 100% and you are in profit.
As for ROAS or return on ad spend, it’s the return of advertising investment. It’s pretty similar to ROMI when it’s calculated without deducting advertising expenditures and cost of goods.
Let’s now walk you through the formulas for calculating 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 – Marketing cost/Marketing cost
To calculate ROAS:
Take the total conversion value and divide it by your advertising costs.
Total conversion value/advertising costs
To calculate ROMI:
Take the marketing income and subtract cost of goods and marketing expenditure from it. Then divide the total with marketing expenditures. Finally, multiply it by 100 to get a percentage value.
Marketing income – cost of goods – marketing expenditure/marketing expenditure * 100
To beat the confusion that crops up when you look ROI vs ROMI vs ROAS, we asked over 35 experts which metric they find useful.
The results? Surprising, really, as there’s tough competition between the three with ROI taking the lead only by a bit and ROMI and ROAS in a tied position.
See for yourself:
Let’s now share the reasoning that the contributors shared in favor of each of these metrics.
“ROI is the best way to measure the effectiveness of your ad campaigns,” opines Bruce Hogan of SoftwarePundit. Why? “Because it gives you an accurate picture of the money you invested and the money that investment returned. It provides an actual view of profitability,” according to Hogan.
Michael Sena from Senacea also thinks of ROI “as the most comprehensive measure of ad campaign effectiveness.”
Sena’s reasoning? “Because it allows for the greatest flexibility for assumptions. The company using it can decide what they consider investment and how they calculate the dollar value of the return.”
Sena also pulls up a comparison between ROI vs ROMI and ROI vs ROAS, highlighting, “ROMI in comparison relates additional profit margins to the cost of marketing, which makes it a biased metric for companies with the margins that highly depend on sales volumes or are seasonal.
ROAS, on the other hand, doesn’t always facilitate apples to apple comparisons between ad campaigns. For instance, ROAS would fail to capture the full cost of a retargeting campaign, because the measure doesn’t include the cost of i.e. acquiring emails.”
“Nevertheless, it is good to use all three (ROI, ROMI & ROAS) if the available data allows for an easy calculation. Together they allow to create a more comprehensive case and make better-informed decisions,” sums up Sena.
ClickThrough’s Lachlan Kirkwood opines ROI is a good measure of your ad campaign’s effectiveness as it factors in all expenses. Kirkwood writes, “Unlike ROMI or ROAS, ROI should include EVERY cost associated with your campaign.
These costs will factor the ad spend itself, as well as the time costs of designing ad creatives, setting up the campaign, and monitoring its performance. After including all of these costs, you’ll get a true representation of your net return from investment.”
Chris Davis from Revcarto makes another strong point in favor of using ROI: “It can be easy to look at ROAS since it is literally how much money you’re making back from strictly ad spend – but this is limiting and not 100% accurate.”
“Ads are very complicated and involve much more than just ad spend,” continues Davis. “There can be hours of work included for creative production, targeting, and copywriting in order to just get a single campaign running. By taking all of that (plus your ad spend) into consideration, you then get more of a full picture on how much you’re actually getting back from what you put in.”
Besides, “Measuring ad effectiveness needs to be done with a view of the full customer journey,” notes Laura Caveney from Ruler Analytics. “While ad campaigns, especially remarketing advertising, are great for pushing a user into purchasing, this isn’t a universal truth.
Some customers can take tens, or even hundreds of touchpoints, to convert into a sale. Getting a view of how content and adverts work together to drive a prospect to become a sale is essential to understanding the full effectiveness of your ad campaigns.”
Caveney goes on, “As such, ROI, or return on investment is the best way to measure your success. Using marketing attribution tools (like Ruler Analytics), you can track every lead, and all of their touchpoints. That means you’ll get a full view of how your marketing (and specifically your advertising) is influencing your leads. And even better, you can ensure revenue is attributed to each relevant channel or campaign to properly assign value to your marketing.”
Editor’s note: Track your ad campaign’s ROI on one screen using this free Google Ads dashboard. It gives click rates, cost per click, impressions, and more.
To begin with, Jonathan Aufray from Digital Growth Hackers speaks 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 ad campaigns, I believe you should focus on ROAS (Return on ad Spend) rather than ROI.
Indeed, you want to track what your specific campaigns generate in terms of CPA (Cost per Acquisition) and sales without taking into consideration metrics such as wages or overhead costs (At least at the beginning).”
SurveyMonkey’s Mike Tatum also insists, “The best and most reliable way to measure the effectiveness of your campaigns is ROAS. At a basic level, you always want to know how much you’re getting in terms of revenue from every dollar you pay to platforms like Google and Facebook. While ROI and ROMI are also metrics that you should be tracking they’re not metrics you can really optimize on the platform side.”
John Ross from USMLE Test Prep Insight agrees with these folks, saying: “While ROI and ROMI are helpful metrics and can help inform overall marketing direction and strategy, nothing provides targeted data like ROAS.”
“This data point allows for in-the-weeds, narrow analysis on just how successful a particular ad campaign was on a dollar-for-dollar basis,” remarks Ross. “As an example, we recently ran an ad campaign around our USMLE prep course, and the follow-up analysis was primarily informed by looking at the campaign’s ROAS.
The ROI and ROMI metrics just didn’t give us the detail we needed to look at this campaign as it compared to other campaigns we’ve run around other test prep courses we review. This helped to shape our future ad spend budget and where those dollars need to flow.”
But a word of caution that Broca’s Sid Bharath shares: “You don’t want to measure it [ROAS] on each individual ad. This is meant to be a metric that measures effectiveness holistically. So if you’re creating ad campaigns that target different parts of the funnel, as you should, you should measure the overall ROAS to determine if the strategy is working.”
Bernadett Dioszegi from Bannersnack adds to this: “But when you want to measure the effectiveness of your ad campaigns the primary performance metric should be ROAS. The higher your ROAS, the better.
It’s simple to calculate: total conversion value (the amount of revenue you earn from a given conversion) divided by your advertising costs. So it’s essential to add conversion values to your conversion actions.
In the case of eCommerce businesses, the best is to set up dynamic conversion values. If you want to calculate the ROAS of your Google Ads campaign you can do this at the account level, campaign level, or ad group level, so you will see the bigger picture and you will be able to analyze the profitability of your ad campaigns.
Don’t forget to take into consideration post-conversion metrics too, like the rate of the sales team turning a lead into a client, also the lifetime value of a customer. After you assigned the conversion values you can start optimizing your ad accounts. Insights from ROAS will help you make decisions regarding future budgets and advertising strategies.”
Several of our contributors also spoke in favor of ROMI. Spreadsheeto’s Kasper Langmann, for instance, says, “When choosing between ROMI and ROAS, opting for ROMI is a better option as it includes the total costs of everything involved. Unlike ROAS, ROMI gives a better understanding of when or when not the investment is paying off and, if it is, by how much.”
Langmann advises, “ROMI (Return on Marketing Investment) tells the return on investment in marketing. It demonstrates the profitability or waste of a particular sum of the invested money in marketing campaigns.”
Comparing ROI vs ROMI, Ostap Bosak from Marquis Garden comments, “ROI is a bit too the broad indicator, which can be applied to any investment really. Basically, it will show how much profit your investment generates, but that would include marketing investment, inventory investment, overhead, etc. broad indicator, which can be applied to ad.”
Bosak carries on, “ROAS [on the other hand] is a very superficial indicator, which can look great on paper but cost you a lot of money. It only shows how much revenue your ad dollar generates. But it does not account for anything else, and there is a very long road between revenue and actual profit.”
So, “If we are looking to measure the impact of an ad campaign the best option is ROMI,” according to Bosak. “[It] shows how much profit your marketing dollar earns.
Couture Candy’s Eric Jones is of the same opinion: “ROAS gives a bloated picture of your returns that could misdirect you over time without giving a reality check.” However, “ROMI takes everything into account to give you a better picture & to measure the effectiveness of your marketing campaigns.” Which is why Jones thinks, “ROMI (Return On Marketing Investment) is the best way to measure the effectiveness of your Ad campaigns.
Measuring is all about analyzing the data carefully and ROMI can give you a better understanding of when or not the investments are paying off, and, if they are, by how much. This is why we prefer ROMI over anything else. It is one of the most important metrics.”
Alejandro Rioja of So Influential also points out: “Since ROAS does not take into account the cost of your services or products, it can’t reflect the performance of your ad channel completely.”
“ROAS only provides partial data that doesn’t really reflect reality… [as] it doesn’t cover the cost of goods and you don’t subtract your marketing expenditures” adds Francois Mommens of Linkody.
International Consulting’s Yoann Bierling prefers ROMI for measuring their ad campaign’s effectiveness for the same reason. Bierling says, “I tend to use ROMI to measure the success of my campaigns, because ROMI takes in consideration ad spends and also correlated expenses, giving at the end a real idea of what the marketing really brought in with net profit value and be compared against various heterogeneous metrics, while ROAS only let us know how well a campaign worked relatively to its own variables, and can only be compared to other similar ones.”
Alex Willen from Cooper’s Treats relies on ROMI too. “The goal of marketing is to generate a positive return, and ROMI describes the return you’re getting. If you have goals that aren’t immediately profit-related (e.g. building brand awareness around something new that you’ve launched), then ROMI is less relevant, but for the vast majority of my marketing, it’s the right metric to focus on.”
Summing up, Growth360’s Sasha Matviienko outlines, “The main benefit of ROMI – it accounts for Profit, not just the Revenue.”
To explain further, shares, “For example, if you spent $10,000 on Google Ads and got $15,000 in Profit, you would have a ROMI of 0.5. This means that for every dollar spent you get that dollar back, plus 50 cents in actual profit, after all expenses.
The main benefit of ROMI is that you can account for all expenses you had, from coupons to variable costs, such as 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 hard to use for Campaign Strategists on the spot. That’s why ROAS is widely used by Campaign Strategists. While it doesn’t give you an in-depth view of Profits, the trick is to know your Profit Margins and what ROAS you need to break even.”
National Positions’ Matt Erickson has another suggestion altogether. Erickson advises, “The best way to measure the effectiveness of your campaigns is by measuring conversion benchmarks (CRO) for every piece of your campaign.
Why CRO? Because you don’t only want to know what your return is – you want to know WHY a campaign is winning so you can replicate this success in other places. Why is one ad, landing page, or lead source converting better than another? Is your conversion ROI from social media better than Google Ads?
Editor’s note: Keep an eye on your conversion rate, impressions, and other essential metrics with this Google Ads Campaign Performance dashboard.
Approaching any campaign from this mindset of conversion measurement not only provides all the ROI and ROAS data you could ever want, but also gives you the data needed to improve performance and reallocate your marketing investment to improve profitability overall.”
After having read through the insights that our experts shared, I’m positive you now have an idea of which metric you’d like to use to measure your ad campaign’s effectiveness.
To wrap this up, remember that all metrics – ROI, ROMI, and ROAS – come with their perks and downsides, so use the one that fits your needs because “ultimately it depends upon the objective of the campaign,” in the words of Paul Franklin from SideGains.
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